how fda and antitrust courts undermine the hatch-waxman act to

Michigan Telecommunications and Technology Law Review

Volume 21 | Issue 2

2015

Patent Punting: How FDA and Antitrust CourtsUndermine the Hatch-Waxman Act to AvoidDealing with PatentsRebecca S. EisenbergUniversity of Michigan Law School, [email protected]

Daniel A. CraneUniversity of Michigan Law School, [email protected]

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Recommended CitationRebecca S. Eisenberg & Daniel A. Crane, Patent Punting: How FDA and Antitrust Courts Undermine the Hatch-Waxman Act to AvoidDealing with Patents, 21 Mich. Telecomm. & Tech. L. Rev. 197 (2015).Available at: http://repository.law.umich.edu/mttlr/vol21/iss2/1

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PATENT PUNTING: HOW FDA ANDANTITRUST COURTS UNDERMINE THE

HATCH-WAXMAN ACT TO AVOIDDEALING WITH PATENTS

Rebecca S. Eisenberg*Daniel A. Crane**

Cite as: Rebecca S. Eisenberg and Daniel A. Crane,Patent Punting: How FDA and Antitrust Courts Undermine the

Hatch-Waxman Act to Avoid Dealing with Patents,21 MICH. TELECOMM. & TECH. L. REV. 197 (2015).

This manuscript may be accessed online at repository.law.umich.edu.

ABSTRACT

Under the Hatch-Waxman Act, patent law and FDA regulation worktogether to determine the timing of generic entry in the market fordrugs. But FDA has sought to avoid any responsibility for reading pat-ents, insisting that its role in administering the patent provisions of theHatch-Waxman Act is purely ministerial. This gap in regulatory over-sight has allowed innovators to use irrelevant patents to defer genericcompetition. Meanwhile, patent litigation has set the stage for anticom-petitive settlements rather than adjudication of the patent issues in thecourts. As these settlements have provoked antitrust litigation, antitrustcourts have proven no more willing than FDA to address the merits ofthe underlying patent infringement actions, preferring to rely on mis-leading proxies such as the existence of a “reverse payment” in thesettlement agreement.

Antitrust litigation is, at best, a belated and awkward mechanism forcorrecting the effects of improperly delayed generic entry. But FDA iswell-positioned to make timely determinations of which patents meetthe statutory criteria for deferring generic entry. With proper staffingand resources, FDA could use its expertise in drug regulation to makerough assessments of the relationship between particular patents andthe scope of FDA approval in NDAs and ANDAs quickly and cheaply,while leaving patent infringement remedies intact. Only those patents

© 2015 Rebecca S. Eisenberg & Daniel A. Crane. Earlier versions of this paper werepresented at the University of Michigan Law School, Tilburg Law & Economics CenterConference on “Innovation and the Patent System,” Indiana University Law School IPWorkshop, and Loyola Marymount Law School IP Colloquium.

* Robert & Barbara Luciano Professor of Law, University of Michigan.** Associate Dean for Faculty and Research and Frederick Paul Furth, Sr. Professor of

Law, University of Michigan.

197

198 Michigan Telecommunications and Technology Law Review [Vol. 21:197

that FDA decides could reasonably be asserted against an unautho-rized generic would lead FDA to stay approval of the generic pendinglitigation of the infringement action. The result would be a reduction inincentives to pursue dubious patent infringement claims, with a corre-sponding reduction in opportunities for anti-competitive settlements.

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198I. THE HATCH-WAXMAN ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

A. The Orange Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207B. ANDA Infringement Litigation . . . . . . . . . . . . . . . . . . . . . . . . 208

II. PATENT PUNTING AT FDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211A. Rulemaking Without Oversight . . . . . . . . . . . . . . . . . . . . . . . 214B. Deference to Innovators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218C. FTC Investigation and FDA Response . . . . . . . . . . . . . . . . 220D. The Inadequate Counterclaim Remedy . . . . . . . . . . . . . . . . 222

III. SETTLEMENTS AND PATENT PUNTING BY

ANTITRUST COURTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228A. Incentives for Collusive Settlements . . . . . . . . . . . . . . . . . . . 229B. The Response of Antitrust Courts . . . . . . . . . . . . . . . . . . . . . 231C. Patent Punting Leads Antitrust Courts Astray . . . . . . . . . 237

IV. RECONSIDERING THE RESPECTIVE ROLES OF

FDA AND THE COURTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244A. Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245B. Expertise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248C. Relationship of Administrative Determinations to

Litigation Over Validity and Infringement . . . . . . . . . . . . . 253D. Addressing FDA’s Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . 256

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

INTRODUCTION

A major challenge for any patent system is the difficulty of determiningthe validity and scope of patent rights. Within the core of the patent system,it may be possible to use skilled experts to examine patent applications andto adjudicate disputes.1 But ideally, the patent system should also convey

1. Many legal systems throughout the world use specialized tribunals for patent cases.See INT’L INTELLECTUAL PROP. INST. & U.S. PATENT & TRADEMARK OFFICE, STUDY ON SPE-

CIALIZED INTELLECTUAL PROPERTY COURTS (2012), available at http://iipi.org/wp-content/uploads/2012/05/Study-on-Specialized-IPR-Courts.pdf (last visited Jan. 25, 2015). In the U.S.,intermediate appellate jurisdiction over patent disputes has been consolidated since 1983 in thesemi-specialized Court of Appeals for the Federal Circuit (“the Federal Circuit”), created byCongress under the Federal Courts Improvement Act of 1982, Pub. L. No. 97-164, 96 Stat. 25(codified as amended in scattered sections of 28 U.S.C.). The Federal Circuit has jurisdictionover appeals from decisions of the U.S. Patent & Trademark Office, appeals from decisions ofU.S. District Courts in patent cases, and appeals from decisions in the U.S. Court of Claims.The substantial patent docket of the Federal Circuit gives its judges considerable experiencewith patent cases and familiarity with patent law. Many disputed patent issues turn on case-specific technological questions that might be more effectively handled by providing expertiseat the trial court level. See John B. Pegram, Should There Be a U.S. Trial Court with Speciali-

Spring 2015] Patent Punting 199

information about what it protects to a larger universe of people and institu-tions that create, disseminate, purchase, utilize, invest in, and regulate newtechnologies.2 When these actors make decisions in ignorance, error, or un-certainty about the protections and limitations of patents, the balance be-tween patent protection and free access to unpatented and unpatentabletechnology is distorted. The more complex the rules and the more uncertaintheir application, the less effectively they can guide decisions and motivatebehavior.

Uncertainty about the scope of patent protection may create challengesin other parts of the legal system. How do regulators and tribunals chargedwith administering other legal regimes that interact with the patent systemhandle the complexities of patent law? Are they able to summon the re-sources and expertise they need to make informed and timely decisions?

In at least one context—regulation of the entry of generic versions ofpatented drugs—regulators and judges have unapologetically punted on pat-ent issues, relying on broad default rules, deference to interested parties, andother flawed proxies to avoid engaging patent issues on the merits. The va-lidity and scope of drug patents have an important bearing on two types ofrecurring legal decisions: the timing of U.S. Food and Drug Administration(FDA) approval of generic drug products and the antitrust treatment of set-tlements of related patent infringement litigation between patent holders andgeneric competitors. Neither FDA nor the antitrust courts want any part ofthe job of evaluating patents and comparing them to the scope of regulatoryapproval to determine whether they are relevant to the issues before themand whether the patents are valid and infringed. The result has been costlydelays and obfuscation of the legal issues.

FDA has long sought to minimize its responsibility to administer thepatent provisions of the Drug Price Competition and Patent Term Restora-

zation in Patent Litigation?, 82 J. PAT. & TRADEMARK OFF. SOC’Y 765, 788–89 (2000). SomeDistrict Courts see more patent litigation than others, giving their judges more experiencehandling patent cases over time. Kimberly A. Moore, Forum Shopping in Patent Cases: DoesGeographic Choice Affect Innovation? 83 J. PAT. & TRADEMARK OFF. SOC’Y 558 (2001)(finding that 44% of all patent cases are concentrated in 10 out of 94 U.S. District Courts); cf.Jeanne C. Fromer, Patentography, 85 N.Y.U. L. REV. 1444 (2010) (arguing that restrictingvenue in patent infringement litigation to the place of business of a defendant would improvejudicial decision-making in patent cases). Recently Congress established a ten-year pilot pro-gram to allow certain judges within 14 U.S. District Courts to hear patent cases that otherjudges on the same bench decline. Patent Cases Pilot Program, Pub. L. No. 111-349, 124 Stat.3674 (2011). These measures make it less likely that the judges who preside over patent litiga-tion will be averse to that task or inexperienced in patent cases. For an example of such aver-sion, see Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013)(Scalia, J., concurring).

2. For a critique of the patent system as failing to provide effective notice of theboundaries of the rights it creates, see JAMES BESSEN & MICHAEL J. MEURER, PATENT FAIL-

URE: HOW JUDGES, BUREAUCRATS AND LAWYERS PUT INNOVATORS AT RISK (2009).


tion Act of 1984, commonly known as the Hatch-Waxman Act.3 The Hatch-Waxman Act is a complex piece of legislation that yokes together patentprotection and drug regulation in an effort to balance the competing goals of(1) protecting innovators’ incentives to develop new drugs and (2) facilitat-ing the timely entry of cheaper generic versions of older drugs. The legisla-tion uses the timing of FDA product approvals to fortify the exclusionaryeffects of patents by deferring approval of competing generic products dur-ing the patent term. FDA relies on the innovators to specify which patentsmeet the statutory standards for deferring generic approval, insisting that itlacks the expertise and resources to second-guess these assertions. It inter-prets the Hatch-Waxman Act as assigning the job of sorting out the merits ofpatent disputes exclusively to the courts,4 leaving FDA with only the “purelyministerial” tasks of publishing information that the innovators supply5 andstaying approval of generic products for thirty months after the filing of aninfringement action pending instructions from the courts.6 This very strongdefault rule gives all patent holders the power to defer generic competitionduring an automatic stay, even if the merits of their assertions are too dubi-ous to allow them to persuade a court to enter a preliminary injunction.

Punting patent disputes to the courts might in some cases lead to thor-ough (if costly) resolution of the merits through adjudication, perhaps beforean experienced District Court judge who has heard other patent cases,7 andperhaps with review in the Court of Appeals for the Federal Circuit (FederalCircuit), an appellate court with considerable experience in patent appeals.But as with most litigation, a more common outcome is settlement. In manyinfringement action settlements between pharmaceutical innovators andgenerics, the innovator (who has much more to lose than the generic has togain from the litigation) has agreed to make payments to the generic in ex-change for agreement by the generic to defer entry.8 The Federal TradeCommission (FTC) and drug purchasers have repeatedly sued the settling

3. Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (codified as amended in scattered sections of titles 15, 21, 35, and 42 of theU.S.C.); see infra Part II.

4. Applications for FDA Approval to Market a New Drug: Patent Submission andListing Requirements and Application of 30-Month Stays on Approval of Abbreviated NewDrug Applications Certifying That a Patent Claiming a Drug Is Invalid or will Not Be In-fringed, 68 Fed. Reg. 36,676, 36,681 (June 18, 2003); Abbreviated New Drug ApplicationRegulations; Patent and Exclusivity Provisions, 59 Fed. Reg. 50,338 (Oct. 3, 1994) (codified at21 C.F.R. pt. 314), available at http://gpo.gov/fdsys/pkg/FR-1994-10-03/html/94-24052.htm(last visited Jan. 26, 2015).

5. 21 U.S.C. §§ 355(b), (c)(2) (2012).6. Id. § 355(j)(5)(B)(iii).7. Hatch-Waxman infringement actions tend to cluster in a small number of district

courts. See Fromer, supra note 1, at 1500–02; cf. Moore, supra note 1, at 558.8. For a review of the terms of these agreements, see C. Scott Hemphill, An Aggregate

Approach to Antitrust; Using New Data to Preserve Drug Competition, 109 COLUM. L. REV.629, 647–57 (2009).


firms, arguing that these “reverse payments” or “pay for delay” agreementsrestrain competition in violation of the antitrust laws.9

The antitrust courts have responded with two divergent patent puntingstrategies. Prior to the Supreme Court’s 2013 decision in Federal TradeCommission v. Actavis,10 the lower courts were divided on whether theagreements were presumptively lawful (due to the existence of an unexpiredpatent)11 or presumptively unlawful (due to the payment in exchange for apromise not to compete).12 The Supreme Court majority in Actavis formallyheld that these cases call for rule of reason analysis13 that balances “tradi-tional antitrust factors such as likely anticompetitive effects, redeeming vir-tues, market power, and potentially offsetting legal considerations present inthe circumstances, such as here those related to patents.”14 But the majoritydenied that this analysis would require analyzing the merits of the underly-ing patent disputes, instead inviting the courts to infer from the reverse pay-ment that the innovator’s patent infringement claim must have been weak,and the settlement must therefore have been anti-competitive.15 Three dis-senting Justices would have held that an antitrust court should ask whetherthe settlement gives the patent holder monopoly power beyond that con-ferred by the patent, since a patent provides an exception to antitrust law.16

The dissent and the majority agreed on one thing: it was not the job of theantitrust courts to analyze the merits of the underlying patent infringementaction.17

The reluctance of both FDA and antitrust courts to engage the merits ofpatent disputes is understandable. Analyzing patent validity and infringe-ment is hard work. Validity analysis requires comparing the invention asdefined in the patent claims to the prior art at a particular moment in the past

9. See infra Part III.10. 133 S. Ct. 2223 (2013).11. E.g., Valley Drug Co. v. Geneva Pharm., Inc., 344 F.3d 1294 (11th Cir. 2003), cert.

denied, 543 U.S. 939 (2004); Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056(11th Cir. 2005), cert. denied, 548 U.S. 919 (2006); In re Tamoxifen Citrate Antitrust Litig.,466 F.3d 187, 190 (2d Cir. 2006), cert. denied, 551 U.S. 1144 (2007); Ark. Carpenters Health& Welfare Fund v. Bayer AG, 604 F.3d 98 (2d Cir. 2010), cert. denied, 131 S. Ct. 1606(2011); In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008),cert. denied, 557 U.S. 920 (2009).

12. E.g., Andrx Pharm., Inc. v. Biovail Corp. Int’l, 256 F.3d 799 (D.C. Cir. 2001), cert.denied, 535 U.S. 931 (2002); In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003),cert. denied, 543 U.S. 939 (2004); In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012).

13. Fed. Trade Comm’n v. Actavis, Inc., 133 S. Ct. 2223, 2237 (2013) (rejecting theFTC’s proposed “quick look” analysis that would shift the burden to antitrust defendants toshow empirical evidence of “procompetitive effects”).

14. Id. at 2231.15. Id. at 2236–37.16. Id. at 2239–40 (viewing uncertainty concerning patent validity as irrelevant to

whether a settlement violates the antitrust laws).17. See infra notes 199–200 and accompanying text.


from the perspective of a person having ordinary skill in the art.18 Infringe-ment analysis requires interpreting patent claims and comparing them to theproduct or method of treatment for which the defendant seeks FDA approvalas set forth in an Abbreviated New Drug Application (ANDA).19 These de-terminations require reading patent documents in light of the past under-standings of practitioners in the relevant technological community,20 aperspective that may be difficult to access, particularly for generalist judgeswith no training in the field of the invention, as well as reading and interpret-ing documents submitted to FDA seeking regulatory approval to marketdrugs. The legal rules are complex and likely to be contested by highly moti-vated parties. There is considerable room for error. In the antitrust context,the challenge of evaluating the merits of the patent case is aggravated by thelack of current conflict between the patent owner and the alleged infringersince both are now defending the settlement. At this stage only the antitrustplaintiff has an interest in establishing that the underlying infringementclaim was weak in order to establish that the settlement violated the antitrustlaws.

But the merits of the patent dispute matter. Owners of valid patents havea legal right to exclude competitors from the market for the patented inven-tion until the end of the patent term. On the other hand, invalid patentsshould not defer generic entry, and even valid patents should not prevent theentry of products that do not infringe. Settlements of patent infringementactions may be camouflage for anticompetitive behavior that is not author-ized by the patent laws, but they may also legitimately resolve plausible butcontested assertions of infringement. The difference turns on the merits.

The mechanisms used by FDA and the courts to avoid having to analyzethe merits themselves are highly flawed. FDA’s reliance on pharmaceuticalinnovators to decide which patents call for deferring generic entry effec-tively assigns the fox to guard the henhouse. Innovators have a strong inter-est in making dubious assertions of patent infringement. But generics also

18. Since March 16, 2013, U.S. law has conformed to the approach in most other patentsystems, see Rochelle Cooper Dreyfuss, The Leahy-Smith America Invents Act: A New Para-digm for International Harmonization?, 24 SING. ACAD. L.J. 669 (2012), by determining priorart as of the filing date of a patent application, with some limited exceptions for prior artwithin one year of the application filing date. See 35 U.S.C. §§ 102, 103 (2012); Leahy-SmithAmerica Invents Act, Pub. L. 112-29, § 3(n), 125 Stat. 284, 293 (2011). For U.S. patent appli-cations filed prior to March 16, 2013, prior art is measured as of two different dates: theinvention date and one year prior to the filing date. See 35 U.S.C. §§ 102, 103 (2006); Leahy-Smith America Invents Act, Pub. L. 112-29, § 3(n), 125 Stat. 284, 293 (2011). For a compari-son of statutory language before and after the Leahy-Smith America Invents Act, see U.S.Patent Act After the America Invents Act, BITLAW, http://www.bitlaw.com/source/35usc/index.html (last visited Jan. 18, 2015).

19. Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc); Abbott Labs. v.Sandoz, Inc., 566 F.3d 1282 (Fed. Cir. 2009) (en banc).

20. Phillips, 403 F.3d at 1313.


have a strong interest in raising dubious challenges to validity and infringe-ment. Someone without a stake in the matter needs to analyze the merits.

Punting patent issues to the courts has often led not to adjudication onthe merits, but rather to settlements on terms that provoke later antitrustchallenges. The shortcuts deployed by antitrust courts to determine whetherlitigation settlements violate the antitrust laws rely on poor proxies for con-sideration of the merits and invite subterfuge in the framing of agreements,as more fully explained in Part III.21

Even if the antitrust courts were willing to look to the merits of thesettled patent dispute, after-the-fact antitrust litigation over patent settle-ments is a tardy, costly, and error-prone mechanism for determining when aninnovator’s exclusive rights should end and generic entry should begin.Time is of the essence in making these determinations. A better systemwould resolve more disputes at an earlier stage, with more technologicalexpertise, and at lower cost, while minimizing opportunities for strategicgaming. At a minimum, rather than punting all disputes to the courts, andthereby setting the stage for a maximum number of settlements, the systemshould filter out the easiest cases, thereby limiting the opportunity to enterinto possibly collusive agreements to those cases in which the need for fulladjudication justifies the risks of anticompetitive settlements. If the easycases never get to litigation, settlements of the remaining cases are morelikely to reflect compromise of genuine disputes rather than camouflage foranticompetitive agreements.

The obvious candidate for filtering out the easiest disputes, although amost reluctant one, is FDA. FDA has avoided this job so far by insisting thatit lacks expertise in patent matters, while ignoring the considerable advan-tages that it has over the courts in the unique context of infringement litiga-tion under the Hatch-Waxman Act. Rather than the usual infringementanalysis, which compares the claims of a patent to an actual infringing prod-uct or process, the Hatch-Waxman Act requires a comparison between thescope of a patent and the scope of FDA approval documents at two differentstages. First, to figure out whether a particular patent is properly submittedto FDA for listing, it is necessary to determine whether the patent claims adrug or a method of using a drug that is within the scope of an approved orpending New Drug Application (NDA). If not, then the patent is irrelevant tothe timing of generic approval. Second, when an Abbreviated New DrugApplication (ANDA) is filed for a generic version of the product, it is neces-sary to compare the claims of properly listed patents to the scope of approvalsought in a pending ANDA to determine whether the patent is relevant to theparticular ANDA. If not, then the ANDA need not address that patent in acertification, and FDA need not defer approval of the ANDA.

21. See infra notes 213–218.


Whatever the limits of its patent expertise, FDA has a decisive advan-tage over any other institution in reading NDAs and ANDAs to determinewhat drugs and methods of use they cover. Its technical expertise in the fieldof drug development may also give it a significant advantage over generalistcourts in reading and understanding drug patent claims from the perspectiveof a person having ordinary skill in the art of drug development.

FDA also has the advantage of being in the right place at the right timeto make timely decisions. Congress has given FDA a central role in trackingand enforcing the pharmaceutical patents covered by the Hatch-WaxmanAct. FDA receives prompt notice of the issuance of relevant patents, thefiling of ANDAs, and the filing of infringement actions, giving it an earlyopportunity to address issues before they get attention from the courts. Asthe regulatory gatekeeper to the pharmaceutical marketplace, FDA must ulti-mately determine when generic entry may begin. So far, FDA has taken itsmarching orders in the first instance from the innovators, erring on the sideof deferring generic entry. But it is by no means clear that this is what Con-gress intended in the Hatch-Waxman Act. We argue below that FDA couldand should take a larger role in determining which patents should defer ge-neric entry without overstepping the limits of its statutory authorities andwithout displacing the role assigned to the courts in the Hatch-Waxman Actand under the patent laws. But further Congressional action may be neces-sary to get FDA to exercise regulatory oversight and to provide it with re-sources to do the job expeditiously.

I. THE HATCH-WAXMAN ACT

Two statutes dominate the legal environment for new drug development:the Patent Act22 and the Federal Food, Drug and Cosmetic Act.23 Althoughthese legal regimes were once separate, Congress yoked them together inpassing the Hatch-Waxman Act of 1984. Congress attempted to strike a bal-ance between promoting price-lowering competition in older drugs by en-couraging generic entry in the market after the expiration of all relevantpatents and promoting innovation in new drug development by deferringgeneric entry prior to that time. This Part describes how the Hatch-WaxmanAct adjusted both patent and drug regulation in an effort to balance thesecompeting goals.

To promote competition, the Hatch-Waxman Act substantially loweredthe regulatory entry barrier for generic versions (generics) of previously ap-proved products (listed products) by allowing the use of an AbbreviatedNew Drug Application (ANDA)24 rather than the more costly New Drug

22. Set forth as amended in title 35 of the U.S. Code.23. Set forth as amended in title 21 of the U.S. Code.24. The requirements for an ANDA are codified as amended at 21 U.S.C.

§ 355(j)(2)(A) (2012).


Application (NDA) required for a new chemical entity.25 Prior to the Hatch-Waxman Act, FDA treated generic versions of previously approved productsas new drugs, and therefore required that the sponsor of the generic productsubmit full reports of data from clinical trials to make the same showing ofsafety and efficacy required for approval of an NDA.26 This regulatory entrybarrier was usually sufficient to defer generic entry long after relevant pat-ents had expired because the costs of full clinical trials were prohibitive forgeneric products that would be sold at competitive prices.27 The Hatch-Wax-man Act lowered this barrier considerably by allowing approval of anANDA based on a much less costly showing that a generic product is “bioe-quivalent” to a previously approved listed product, without requiring dupli-cation of safety and efficacy trials.28 The result was a substantial increase inapprovals of generic drugs. But pharmaceutical innovators saw ANDAs as aform of unfair free-riding that would allow competitors to share in the regu-latory benefits of valuable proprietary data that the innovators bore the costand risk of generating. This free-riding, they argued, would undermine in-centives for innovation.

25. The requirements for an NDA include submissions of “full reports of investigationswhich have been made to show whether or not such drug is safe for use and whether such drugis effective in use.” 21 U.S.C. § 355(b)(1)(A).

26. Prior to the Hatch-Waxman Act, generic products were sometimes approved with-out new trials on the basis of published literature under a “paper NDA.” 45 Fed. Reg. 82,060(Dec. 12, 1980). Questions about the legality and reach of this mechanism were part of impe-tus for the Hatch-Waxman Act. Alfred B. Engelberg, Special Patent Provisions forPharmaceuticals: Have They Outlived Their Usefulness? A Political, Legislative and LegalHistory of U.S. Law and Observations for the Future, 39 IDEA J. L. & TECH. 389–428 (1999).Although the Federal Food, Drug, and Cosmetic Act (the “FDCA”) now provides for approvalof paper NDAs, 21 U.S.C. § 505(b)(2), this approval pathway has until recently been largelyeclipsed by ANDAs. The language of the provision is quite broad, however, and FDA inter-prets it to allow approval of a drug that is similar but not identical to a previously approvedproduct based in part on previous unpublished studies that the applicant neither conducted norobtained the right to use. Tam Q. Dinh, Potential Pathways for Abbreviated Approval of Ge-neric Biologics under Existing Law and Proposed Reforms in the Law, 62 FOOD & DRUG L.J.77–137 (2007).

27. Gerald J. Mossinghoff, Overview of the Hatch-Waxman Act and its Impact on theDrug Development Process, 54 FOOD & DRUG L. J. 187–94 (1999).

28. An ANDA does not require full reports of clinical trials to show safety and efficacy,so long as the conditions of use, active ingredients, route of administration and strength are thesame as a previously approved “listed product,” the ANDA product is “bioequivalent” to thelisted product, and the labeling of the two products is the same. 21 U.S.C. § 355(j)(2)(A). FDAregulations define bioequivalence as follows:

Bioequivalence means the absence of a significant difference in the rate and extentto which the active ingredient or active moiety in pharmaceutical equivalents orpharmaceutical alternatives becomes available at the site of drug action when ad-ministered at the same molar dose under similar conditions in an appropriately de-signed study. . . .

21 C.F.R. § 320.1(e) (2014).


To promote innovation, the Hatch-Waxman Act deferred generic entryin two ways. First, it amended the Patent Act to give innovators patent termextensions of up to five years to compensate for some of the time lost whiletheir products were in clinical trials and awaiting FDA approval.29 Second, itprovided head-start periods following approval of an NDA before a genericcould submit an ANDA30 or before FDA could approve an ANDA,31 some-times called “data exclusivity” or “regulatory exclusivity.” These regulatoryexclusivity periods function somewhat like patents, in that they defer entryof competing generic products, but the patent holder need not bring a costlypatent infringement action and take the risk that a court would hold the pat-ent invalid. FDA enforces these exclusivity periods by deferring the submis-sion or approval of ANDAs until specified dates, with the effect of keepinggeneric products off the market.

The Hatch-Waxman Act also included complex provisions governingthe timing of ANDA approval during the term of certain patents—specifi-cally, “any patent which claims the drug for which [an NDA is filed] orwhich claims a method of using such drug and with respect to which a claimof patent infringement could reasonably be asserted if a person not licensedby the owner engaged in the manufacture, use, or sale of the drug.”32 Theseprovisions give FDA a role as de facto enforcer of certain drug patents bydirecting it to look to those patents to determine the timing of ANDA ap-provals. The provisions offer valuable benefits both for innovators and forgenerics, but not all patents have these effects.

29. 35 U.S.C. § 156 (2012). The period of extension includes one-half of the time spentin clinical trials and all of the time between submission and approval of the NDA. Id.§ 156(c)(2). The relevant dates are determined by FDA, and on the basis of those dates thePTO extends the term of the patent. Astra v. Lehman, 71 F.3d 1578, 1581 (Fed. Cir. 1995).Both periods are reduced by any time attributable to an applicant’s lack of diligence. 35 U.S.C.§ 156(c)(1). The remaining patent life after extension may not exceed fourteen years beyondthe date of FDA approval. Id. § 156(c)(3). Only the first approval of a new active ingredientqualifies for a patent term extension, and only one patent may be extended per new activeingredient. Fisons PLC v. Quigg, 876 F.2d 99 (Fed. Cir. 1989). The patent to be extended mustbe in force on the date of approval, 35 U.S.C. § 156(a)(1), and it must cover either the product,a method of using the product, or a method of manufacturing the product. Id. § 156(a).

30. No ANDA may be submitted for five years following the first approval of an NDAfor a new chemical entity, except that an ANDA that includes a challenge to validity or in-fringement of a patent may be submitted after four years, subject to an extended stay of regula-tory approval if an infringement action is commenced during the following year. 21 U.S.C.§ 355(j)(5)(F)(ii).

31. FDA may not approve an ANDA that covers an approved supplement to an NDA(such as a supplemental approval for a new indication or for a switch from prescription only toover-the-counter sales) that required further clinical trials for three years from the date ofapproval of the supplement. Id. § 355(j)(5)(F)(iii), (iv).

32. Id. § 355(b)(1).


A. The Orange Book

The Hatch-Waxman Act created a system within FDA for tracking thosepatents “with respect to which a claim of patent infringement could reasona-bly be asserted” against the unauthorized sale of copies of previously ap-proved products, and for deferring the submission and approval of ANDAsduring the term of those patents. An NDA applicant must disclose in itsNDA the patent number and expiration date of any such patent,33 and mustupdate this information to include later-issued patents.34 Upon approval ofthe NDA, FDA publishes this information in a publication called ApprovedDrug Products with Therapeutic Equivalence Evaluations (known as “theOrange Book”), which FDA updates every thirty days.35

When a generic submits an ANDA, it must include a certification orstatement about the relevance to its ANDA of each patent in the OrangeBook for the previously approved “listed” product. If the patent claims thedrug or a method of use for which the ANDA seeks approval, the ANDAmust include one of three statutory “certifications”: a “paragraph II certifica-tion” indicating that the patent has expired; a “paragraph III certification”indicating the date on which the patent will expire; or a “paragraph IV certi-fication” indicating “that such patent is invalid or will not be infringed bythe manufacture, use, or sale of the new drug for which the application issubmitted.”36 If the patent claims a method of use for which the ANDA doesnot seek approval, the ANDA may instead include a “section viii statement”indicating that the patent “does not claim a use for which the applicant isseeking approval.”37

The effect of these provisions is to direct FDA to defer ANDA approvalduring the term of a relevant patent, but not during the term of an irrelevantpatent. If the patent does not claim a drug or method of use that is coveredby an NDA, or if the patent could not reasonably be asserted against anunauthorized version of the drug, or if the patent only claims a method ofuse for which the ANDA does not seek approval, the patent is not relevant toapproval of the ANDA. If no relevant patents remain in force, the ANDAmay be approved without further delay (assuming it is otherwise approva-

33. Id.34. Id. § 355(c)(2).35. U.S. FOOD & DRUG ADMIN., APPROVED DRUG PRODUCTS WITH THERAPEUTIC

EQUIVALENCE EVALUATIONS (34th ed. 2014), available at http://www.accessdata.fda.gov/scripts/cder/ob/default.cfm. The Hatch-Waxman Act requires FDA to publish this informationand to update it every thirty days, including newly submitted patent information in the updates.21 U.S.C. § 355(j)(7)(A).

36. 21 U.S.C. §§ 355(j)(2)(A)(7)(vii)(2)–(4). If there are no patents for the listed drug inthe Orange Book, the ANDA applicant may use a “paragraph I certification,” indicating thatno patent information has been filed. Id. § 355(j)(2)(A)(7)(vii)(1).

37. Id. § 355(j)(2)(A)(viii).


ble).38 If a relevant patent is still in force, the ANDA may be approved uponthe expiration date of that patent.39

B. ANDA Infringement Litigation

Further provisions permit the parties to litigate disputes about patentvalidity and infringement in the courts prior to generic entry. Because theseprovisions are central to FDA’s view of its role in patent disputes as “purelyministerial,” and because they have had considerable unintended conse-quences, we consider them here in some detail. These provisions apply whenan ANDA applicant makes a paragraph IV certification that a relevant patentis invalid or will not be infringed by the ANDA product. The ANDA appli-cant must give notice within 20 days to the patent owner and to the holder ofthe approved NDA including “a detailed statement of the factual and legalbasis of the opinion of the applicant that the patent is invalid or will not beinfringed.”40 The ANDA may then be approved immediately, unless a patentinfringement action is brought within forty-five days.41 The filing of a patentinfringement action triggers an automatic thirty-month stay of FDA approvalof the ANDA, which may be adjusted by the court if either party fails tocooperate in expediting the action.42 To allow litigation of these claims priorto generic entry, the Hatch-Waxman Act amended the Patent Act to make itan act of infringement to submit an ANDA “for a drug claimed in a patent orthe use of which is claimed in a patent” for the purpose of obtaining ap-proval for commercial marketing prior to patent expiration.43 A prevailingplaintiff—the innovator—may obtain a court order deferring the effectivedate of approval of the ANDA until the end of the patent term and an injunc-tion against commercial manufacture, use, offer to sell, or sale by the genericmanufacturer but may not recover damages unless commercial acts have oc-curred.44 On the other hand, if a court determines that the patent is invalid ornot infringed, approval of the ANDA may be made effective immediately,even if the 30-month stay has not yet expired.45

These provisions fortify in several ways the exclusionary power of thosepatents “with respect to which a claim of patent infringement could reasona-

38. Id. §§ 355(j)(2)(A)(vii)(I), (II), 355(j)(5)(B)(i). A section viii statement has no ef-fect on the date on which ANDA approval may be made effective. Id. § 355(j)(2)(A)(viii).

39. Id. §§ 355(j)(2)(A)(vii)(III), 355(j)(5)(B)(ii).40. Id. §§ 355(j)(2)(B)(iv)(II), 355(j)(5)(B)(iii). The twenty-day period for giving notice

is measured from “the date of the postmark on the notice with which the Secretary informs theapplicant that the application has been filed.” Id. § 355(j)(2)(B)(ii)(I). If the notice is made aspart of an amendment or supplement to an application, notice must be given at the time of theamendment or supplement. Id. § 355(j)(2)(B)(ii)II).

41. Id. § 355(j)(5)(B)(iii).42. Id. § 355(j)(5)(B)(iii).43. 35 U.S.C. § 271(e)(2)(A) (2012).44. Id. § 271(e)(4).45. 21 U.S.C. § 355(j)(5)(B)(iii)(I).


bly be asserted” against an ANDA product. They provide notice to genericsof the existence of relevant patents and require that generics include patentcertifications for each relevant patent in their ANDAs. If a generic assertsthrough a paragraph IV certification that a relevant patent is invalid or notinfringed, it must agree to give notice to the patent holder and NDA holder.If a patent is irrelevant to the ANDA because it covers only methods of usefor which the ANDA does not seek approval, the ANDA must include asection viii statement to that effect. Unless an ANDA includes a paragraphIV certification or a section viii statement, FDA will use its regulatory gate-keeper role to defer the effective date of ANDA approval until the patentslisted in the Orange Book expire, thereby excluding competitors from themarket without the need for infringement litigation. Patent owners need notmonitor the market to spot infringing activity: they can wait for infringers tostep forward and reveal their plans, along with “a detailed statement of thefactual and legal basis of the opinion of the applicant that the patent is inva-lid or will not be infringed” that they may consider as they contemplatewhether to bring an infringement action. They may sue for infringementbefore commercial activity has begun, giving them an opportunity to secureinjunctive relief before they suffer any loss of revenue from generic entry.And if they choose to sue, they may secure an automatic thirty-month stayagainst generic entry, providing preliminary relief without the usual show-ing46 required to get a preliminary injunction from a court. These regulatoryconsequences—which we call the “Hatch-Waxman boost”—reach beyondthe ordinary remedies that courts award for patent infringement. The Hatch-Waxman boost uses regulatory consequences to fortify the exclusionary ef-fects of patents. These advantages may motivate innovators to include in theOrange Book patents of dubious validity or narrow scope, even if an impar-tial observer would disagree that “a claim of patent infringement could rea-sonably be asserted” against a bioequivalent product on the basis of thosepatents.

The statute also offers benefits to generics that may encourage them touse paragraph IV certifications to challenge validity or infringement evenwhen the merits of the challenge are uncertain. The most valuable of thesebenefits is “generic exclusivity,” which gives the first generic to submit anANDA with a paragraph IV certification a 180-day head start period follow-ing first commercial marketing of the ANDA product before FDA will ap-prove another ANDA with a paragraph IV certification for the same drug.47

Because the first generic competitor in the market for a drug typicallycharges higher prices and captures a larger market share until a second ge-neric competitor enters the market, this period of generic exclusivity has

46. See Amazon.com v. Barnesandnoble.com, 239 F.3d 1343 (Fed. Cir. 2001).47. 21 U.S.C. § 355(j)(5)(B)(iv)(I).


significant value.48 Even if an applicant does not qualify for generic exclu-sivity, an ANDA with a paragraph IV certification may be submitted a fullyear before an ANDA without such a certification, as early as four yearsafter approval of the NDA for the listed drug.49 If the innovator does notbring an infringement action, the ANDA may be approved effective immedi-ately,50 but if an infringement action is commenced during the fifth yearfollowing approval of the NDA, the thirty-month stay is extended to expireseven and a half years after approval of the NDA.51 A generic firm mightwelcome an opportunity to probe the willingness of a patent holder to liti-gate validity and infringement at this early stage, prior to market entry andwithout having to risk liability for damages if it loses.52 Finally, filing anANDA with a paragraph IV certification starts the meter ticking on thethirty-month stay of FDA approval of the ANDA, while precluding (under2003 amendments) the entry of additional stays based on later patents sub-mitted after the filing date of the ANDA.53

48. CONGRESSIONAL BUDGET OFFICE, HOW INCREASED COMPETITION FROM GENERIC

DRUGS HAS AFFECTED PRICES IN THE PHARMACEUTICAL INDUSTRY (1998). The value of ge-neric exclusivity is diminished if multiple ANDA filers share the exclusivity. Multiple ANDAfilers may share the 180-day period of generic exclusivity if each files a complete applicationwith a paragraph IV certification on the same date and no previously filed ANDA for the samedrug included a paragraph IV certification. 21 U.S.C. §§ 355(j)(5)(B)(iv)(I), (II)(bb) (2012).For blockbuster products, such multiple filings are common on the first date that they areallowed, four years after approval of the NDA. Id. § 355(j)(5)(F)(ii). See CENTER FOR DRUG

EVALUATION, FOOD & DRUG ADMIN., GUIDANCE FOR INDUSTRY 180-DAY EXCLUSIVITY WHEN

MULTIPLE ANDAS ARE SUBMITTED ON THE SAME DAY, 4 (2003), available at http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm072851.pdf (last visited Jan. 21, 2015). The value of generic exclusivity may also be diminished if theNDA holder decides to launch its own competing “authorized generic” during the genericexclusivity period. An “authorized generic” is a product that is marketed and priced as a ge-neric but sold under the authority of the holder of the NDA rather than under an ANDA. Thecourts have sustained the legality of authorized generics. See Teva Pharma. Indus. Ltd. v.Crawford, 410 F.3d 51, 54 (D.C. Cir. 2005). Authorized generics increase competition duringthe period of generic exclusivity and thereby reduce prices to consumers, but the long termeffects may be more ambiguous if authorized generics undermine incentives to challenge drugpatents by filing paragraph IV certifications. FEDERAL TRADE COMM’N, AUTHORIZED GENER-

ICS: AN INTERIM REPORT (2009), available at http://www.ftc.gov/os/2009/06/P062105authorizedgenericsreport.pdf (last visited Jan. 21, 2013). See also JOHN R. THOMAS, CONG. RE-

SEARCH SERV., RL33605, AUTHORIZED GENERIC PHARMACEUTICALS: EFFECTS ON INNOVATION

(2006), available at http://research.policyarchive.org/2955.pdf (last visited May 1, 2015). TheFTC report on authorized generics estimates that on average, expenditures at wholesale pricesof a generic during the 180-day exclusivity period equal 61% of expenditures on the brandname product during a comparable period prior to generic entry. Once the generic exclusivityperiod expires and more generic competitors enter, price competition is likely to reduce profitsconsiderably.

49. 21 U.S.C. § 355(j)(5)(F)(ii) (2012).50. Id. § 355(j)(5)(B)(iii).51. Id. § 355(j)(5)(F)(ii).52. See supra notes 42–45 and accompanying text.53. 21 U.S.C. § 355(j)(5)(B)(iii).


In short, the rules of the Hatch-Waxman Act alter the exclusionary ef-fects of patents in ways that are potentially valuable to both innovators andgenerics. Each side has reasons to litigate disputes that might appear risky toan impartial observer. It therefore makes good sense to question the asser-tions of both innovators and generics as to whether “a claim of patent in-fringement could reasonably be asserted” against an ANDA product on thebasis of particular patents. Otherwise, these interested parties might imposeunjustified restrictions on competition in purported reliance on irrelevantpatents.

II. PATENT PUNTING AT FDA

From the start, FDA has taken a narrow view of its role in administeringthe patent provisions of the Hatch-Waxman Act, insisting that it has no obli-gation to police the accuracy or appropriateness of the patent informationsubmitted to it by innovators or the relevance of particular patents to particu-lar NDAs or ANDAs.54 FDA has repeatedly engaged in rule-making to inter-pret the patent provisions of the Hatch-Waxman Act to specify the kinds ofpatents that are to be disclosed by NDA applicants and to devise administra-tive mechanisms to implement those provisions, but it has structured its reg-ulations to keep the agency free of any burden to oversee compliance, oreven to read patents to check if the information submitted is accurate.

Some features of the statutory scheme are consistent with a limited FDArole in resolving patent disputes under the Hatch-Waxman regime. For ex-ample, the statutory obligation on innovators to disclose patent informationto FDA mentions only patent numbers and expiration dates,55 without ex-plicitly requiring that applicants provide FDA with copies of patents or oth-erwise specify what they cover.56 Nor is the statutory obligation on FDA to

54. Abbreviated New Drug Applications, Proposed Rule, 54 Fed. Reg. 28,872 (pro-posed July 10, 1989) [hereinafter 1989 Proposal]; Abbreviated New Drug Application Regula-tions; Patent and Exclusivity Provisions, 59 Fed. Reg. 50,338 (Oct. 3, 1994) [hereinafter 1994Final] (codified at 21 C.F.R. pt. 314); Applications for FDA Approval to Market a New Drug:Patent Listing Requirements and Application of 30-Month Stays on Approval of AbbreviatedNew Drug Applications Certifying That a Patent Claiming a Drug is Invalid or Will Not beInfringed, 67 Fed. Reg. 65,448 (proposed Oct. 24, 2002) [hereinafter 2002 Proposal]; Applica-tions for FDA Approval to Market a New Drug: Patent Submission and Listing Requirementsand Application of 30-Month Stays on Approval of Abbreviated New Drug Applications Certi-fying That a Patent Claiming a Drug is Invalid or Will Not be Infringed, 68 Fed. Reg. 36,676(June 18, 2003) [hereinafter 2003 Final] (codified at 21 C.F.R. pt. 314).

55. 15 U.S.C. § 355(b)(1) (2012) (“The applicant shall file with the application the pat-ent number and the expiration date of any patent which claims the drug for the which theapplicant submitted the application or which claims a method of using such drug and withrespect to which a claim of patent infringement could reasonably be asserted if a person notlicensed by the owner engaged in the manufacture, use, or sale of the drug.”). But cf. 21 C.F.R.§ 314.53(b) (2014) (administrative regulation requiring that applicant submit additional infor-mation for patents claiming polymorphs and methods of use).

56. FDA regulations, however, require more extensive disclosure. See id. § 314.53(b).


publish patent information explicitly limited to information that is relevantor accurate.57 If an ANDA includes a paragraph IV certification, the statutedoes not include FDA among the parties to whom the applicant must give “adetailed statement of the factual and legal basis of the opinion of the appli-cant that the patent is invalid or will not be infringed.”58 The statute specifiesan accelerated time frame for ANDA applicants to give the required notice(twenty days after FDA informs the applicant that the ANDA has beenfiled)59 and for patent holders to respond by bringing infringement actions(forty-five days after receiving the notice),60 leaving limited time for admin-istrative review before litigation begins. And if the patent holder decides tosue the applicant for infringement, the statute directs FDA to stay approvalof the ANDA for thirty months pending litigation of the patent dispute in thedistrict court,61 while giving the court authority to modify the stay if theparties are dilatory in pursuing the litigation. These provisions are consistentwith a limited function for FDA as a clearinghouse for patent information,leaving to the courts any substantive determinations on the merits.62

But the role of the courts is also limited, inviting a larger regulatory roleto fill important gaps in the statutory scheme. The considerable commercialvalues at stake in the cascade of regulatory consequences that follow fromlisting patents in the Orange Book—what we call the Hatch-Waxmanboost—makes it treacherous to leave firms with unfettered discretion overpatent listing decisions. Determinations of which patents are entitled to theHatch-Waxman boost have great economic significance not only to the firmsthat file NDAs and ANDAs, but also to patients who need drugs and to thosewho pay for their care.

The statute sets a standard that restricts the Hatch-Waxman boost tocertain qualifying patents, specifically:

57. 21 U.S.C. § 355(b)(1) (2012) (“Upon approval of the application, the Secretary shallpublish information submitted under the two preceding sentences.”).

58. The language quoted in text appears at 21 U.S.C. § 355(j)(2)(B)(iv)(II). The statutespecifies that notice must be given to “each owner of the patent that is the subject of thecertification,” id. § 355(j)(2)(B)(iii)(I), and to “the holder of the approved application . . . forthe drug that is claimed by the patent or a use of which is claimed by the patent,” id.§ 355(j)(2)(B)(iii)(II), but does not require that this notice be given to “the Secretary” or toFDA, so long as the applicant includes with its ANDA a statement that it will give notice tothe specified parties as required by the statute. Id. § 355(j)(2)(B)(i).

59. Id. § 355(j)(2)(B)(ii).60. Id. § 355(j)(5)(B)(iii).61. Id. If an infringement action is commenced during the final year of regulatory exclu-

sivity (i.e., between four and five years after approval of the NDA), the 30-month stay shall beextended to give a total of seven and one-half years between NDA approval and expiration ofthe stay. Id. § 355(j)(5)(F)(ii).

62. Indeed, Congress went to some trouble to clarify that the courts could hear thesedisputes before market entry by the generics, amending the Patent Act to define the filing of anANDA for a drug claimed in a patent or the use of which is claimed in a patent as an act ofpatent infringement. 35 U.S.C. § 271(e)(2)(A).


[A]ny patent which claims the drug for which the applicant submit-ted the application [i.e., the NDA] or which claims a method ofusing such drug and with respect to which a claim of patent in-fringement could reasonably be asserted if a person not licensed bythe owner engaged in the manufacture, use, or sale of the drug.63

This standard imposes at least three limitations: (1) the patent mustclaim a drug or a method of using a drug;64 (2) the claimed drug or methodof use must be within the scope of the NDA in connection with which thepatent is submitted;65 and (3) the patent must support a reasonable assertionof infringement against unauthorized manufacture, use or sale of the drug.Patents that do not meet these criteria should not trigger the Hatch-Waxmanboost.

The statute further limits the Hatch-Waxman boost by relieving ANDAfilers from the obligation to submit a certification for certain listed methodof use patents. An applicant may instead submit a “section viii statement” ifthe patent is “a method of use patent which does not claim a method of usefor which the applicant is seeking approval.”66 The use of a section viii state-ment allows a generic to avoid the requirement to give notice of the basis forthe patent challenge and to avoid the automatic thirty-month stay of approvalof the ANDA. On the other hand, use of a section viii statement does notallow the generic to claim a right to generic exclusivity. These are signifi-cant consequences that turn on the relationship between certain patents onmethods of use and the scope of approval sought in an ANDA. Yet nothingin the Hatch-Waxman Act gives District Courts the opportunity or authorityto determine whether a particular ANDA is entitled to bypass the Hatch-Waxman boost in this fashion.

As originally enacted, the Hatch-Waxman Act provided no mechanismfor judicial review of the propriety of patent listings at all, leaving only FDAin a position to withhold the Hatch-Waxman boost from patents that did notmeet the statutory criteria.67 In 2003, Congress amended the statute to allowan ANDA applicant that has been sued for infringement to “assert a counter-claim seeking an order requiring the holder [of the NDA] to correct or delete

63. Id. § 355(b)(1). The “application” in this context is the NDA submitted by the inno-vator for the listed drug.

64. For FDA’s interpretation of this statutory language, see 21 C.F.R. § 314.53(b)(2014) (language does not extend to patents on manufacturing processes, packaging, metabo-lites, and chemical intermediates).

65. FDA reasonably interprets the statute as limiting both patents on the drug andmethod of use. Id.

66. 21 U.S.C. § 355(j)(2)(A)(viii) (2012).67. Mylan Pharm., Inc. v. Thompson, 268 F.3d 1323, 1332–33 (Fed. Cir. 2001) (finding

no private cause of action to delist a patent from the Orange Book, and improper listing of apatent is not a defense to a patent infringement action); Apotex, Inc. v. Thompson, 347 F.3d1335, 1352 (Fed. Cir. 2003).


the patent information submitted by the holder . . . on the ground that thepatent does not claim either—(aa) the drug for which the application wasapproved, or (bb) an approved method of using the drug.”68 No damage rem-edy is available for such a counterclaim, and a counterclaim may only beasserted if an infringement action is filed.69

This belated provision for a statutory counterclaim does little to addressthe problem of improper patent listings. By the time such a counterclaim isasserted, it is already too late to undo the effects of the Hatch-Waxmanboost. The listing of the patent has already made it necessary for the ANDAapplicant to submit a certification for the patent and to give notice to theNDA holder and patent holder of the basis for any challenge to validity orinfringement of the patent, the first ANDA with a paragraph IV certificationhas already established its entitlement to 180 days of generic exclusivity,and the thirty-month stay has been triggered. The stay may well have run itsfull course by the time a district court orders the NDA holder to correct theinformation in the Orange Book.

Although the Hatch-Waxman Act plainly contemplated that the courtswould adjudicate disputes about infringement and validity involving “anypatent which claims the drug for which the applicant submitted the [NDA]or which claims a method of using such drug and with respect to which aclaim of patent infringement could reasonably be asserted if a person notlicensed by the owner engaged in the manufacture, use, or sale of thedrug,”70 there is no reason to think that Congress intended to confer theHatch-Waxman boost on patents that do not meet the statutory criteria forlisting in the Orange Book. It is even less plausible that Congress intended todefer approval of an ANDA based on a method of use patent which does notclaim a method of use for which the ANDA is seeking approval. Congress,however, failed to provide an explicit mechanism for determining which pat-ents should trigger the Hatch-Waxman boost, leaving FDA to address thisgap in the regulatory scheme through rulemaking.

A. Rulemaking Without Oversight

FDA has used rulemaking to minimize its ongoing role in administeringthe patent provisions of the Hatch-Waxman Act. At the same time it hasrevealed considerable sophistication about how firms have exploited impre-cision and gaps in the statute and willingness to take liberties with the statu-tory text. It took FDA a full decade after passage of the Hatch-Waxman Act

68. Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub. L.No. 108-173 117 Stat. 2452 [hereinafter MMA 2003] (codified in pertinent part at 21 U.S.C.§ 355(j)(5)(C)(ii)(I)).

69. See 21 U.S.C. § 355(j)(5)(C)(ii)(II) (2012) (“Subclause (I) does not authorize theassertion of a claim described in subclause (I) in any civil action or proceeding other than acounterclaim . . .”).

70. 21 U.S.C. § 355(b)(G) (2012).


to promulgate a final rule in 1994 interpreting its patent provisions.71 Bythen FDA had become familiar with many strategic moves made by firmsseeking to claim or avoid the Hatch-Waxman boost. The regulations72 setspecific limits on the types of patents to be listed in the Orange Book, callingfor the listing of patents on drug substances, drug products and methods ofuse that are the subject of a pending or approved NDA, and explicitly ex-cluding patents on manufacturing processes,73 packaging, metabolites, andintermediates.74 Although the statute mentioned only patent number and ex-piration date, FDA’s regulations further required disclosure of the type ofpatent and the identity of the patent owner.75 FDA also required NDA hold-ers “to notify FDA of the patented uses that appear in the approved labelingfor their products” so that FDA could provide guidance to ANDA filersabout whether to submit a section vii—i.e., a Paragraph II, III, or IV—certi-fication or a section viii statement.76 The regulations filled other gaps in thestatute that had come to light. For example, they extended the use of para-graph IV certifications to patents that are unenforceable (as distinguishedfrom the explicit statutory categories of “invalid” and “not infringed”)77 andspecified that late submissions of patents would be included in the OrangeBook but do not require further certifications from ANDA applicants whopreviously submitted a certification for other listed patents.78 In a provisionsubsequently struck down by the courts,79 FDA added to the statutory re-quirements for generic exclusivity a further requirement that the genericmust have successfully defended a patent infringement action.80

In contrast to this active role in interpreting the patent provisions of thestatute, FDA repeatedly and emphatically rejected suggestions that it moni-tor compliance with these provisions and regulations in individual cases, cit-ing its lack of patent expertise, lack of resources, and the higher priority itassigned to other tasks. The following response to a proposal that it establisha mechanism “for review of submitted patent information to determine, at

71. See 1994 Final, supra note 54.72. See 21 C.F.R. § 314.53(b) (2014). The regulations were amended in 2003 in re-

sponse to an FTC investigation of abuses. See 2002 Proposal, supra note 54; 2003 Final, supranote 54.

73. The Hatch-Waxman Act included patents on manufacturing methods in designatingpatents eligible for patent term extension. 35 U.S.C. § 156(a) (2012).

74. The original version of these regulations as promulgated in 1994 are set forth at theend of 1994 Final, supra note 54.

75. 1994 Final, supra note 54, § III.A.25; 21 C.F.R. §§ 314.53(b), (c).76. 1994 Final, supra note 54, § III.A.1; 21 C.F.R. § 314.53(c).77. See 1994 Final, supra note 54, § III.A.5; 21 C.F.R. §§ 314.50((h)(1)(A)(4),

314.94(a)(12)(i)(A)(4).78. 1994 Final, supra note 54, § III.A.7; 21 C.F.R. § 314.50(i)(B)(4).79. Mova Pharm. Corp. v. Shalala, 140 F.3d 1060, 1069 (D.C. Cir. 1998).80. See 21 C.F.R. § 314.107(c)(1). The 1994 version of 21 C.F.R. § 314.107(c)(1) is set

forth at the end of 1994 Final, supra note 54.


least on a very general basis, applicability to the particular NDA in question”is typical:

As stated elsewhere in this final rule, FDA does not have the exper-tise to review patent information. The agency believes that its scarceresources would be better utilized in reviewing applications ratherthan reviewing patent claims.81

FDA sometimes went so far as to cite its own professed ignorance ofpatent law as a canon of interpretation, invoking it as a reason to choose aninterpretation that it could administer without having to understand patentlaw over an alternative interpretation that would require patent expertise toadminister. For example, FDA rejected a suggestion that it should limit thescope of generic exclusivity by deferring only those later-filed ANDAs thatactually benefited from the previous paragraph IV challenge by the firmholding generic exclusivity. Under this rejected approach, FDA would notdefer approval of an ANDA with a paragraph IV certification that raised adifferent infringement issue than was raised in the original challenge, be-cause in that situation the subsequent ANDA filer was not free-riding on theefforts of the first challenger. FDA rejected this interpretation of the statutebecause it would require FDA to determine whether the two paragraph IVcertifications raised the same or different patent issues:

FDA lacks the expertise in patent law that would allow it to deter-mine whether a subsequent applicant raised issues of noninfringe-ment in common with the previous applicant. Therefore, the 180-day period is available to the applicant who resolves an issue ofpatent coverage, regardless of the judgment’s applicability to subse-quent ANDA applicants.82

Here, FDA prioritized its wish to avoid patent issues over the policy oflimiting generic exclusivity to circumstances that would otherwise present afree rider problem. Yet this same policy led FDA to take great liberties withthe statutory language in limiting the scope of generic exclusivity when itdid not require FDA to engage with patent issues. As previously noted,83

FDA added a regulatory requirement (subsequently overturned by thecourts) that the challenger must be sued for infringement and successfullydefend the action in order to claim generic exclusivity. FDA justified thisregulatory gloss on the statutory scheme as following from the underlyingrationale of encouraging meritorious patent challenges by protecting suc-

81. 1994 Final, supra note 54, § III.C.22. See also id. §§ III.C.26, III.C.38, III.F.41,III.G.54, III.G.61.

82. 1989 Proposal, supra note 54, § V.K.2.83. See supra notes 79–80 and accompanying text.


cessful challengers from competition from free riders.84 But the same ratio-nale for generic exclusivity would also seem to support limiting genericexclusivity to defer only those subsequent ANDAs that raise the same in-fringement issue. After all, ANDAs with patent challenges that do not raisethe same issues are not free-riding on the efforts of the first generic chal-lenger. FDA was unwilling to consider this argument only because it meanthaving to evaluate the relevance of patent infringement litigation to particu-lar ANDAs. Put differently, patent punting functioned as a canon of interpre-tation that led FDA to choose some meanings and reject others according tothe resulting burden on FDA to engage with patents.

Sometimes FDA justified its patent punting moves as preserving thestatutory role of the courts in resolving patent disputes. But even for fre-quently contested matters on which the Hatch-Waxman Act provided no re-course to the courts, such as whether an ANDA applicant could use a sectionviii statement rather than a paragraph IV certification, FDA insisted thatCongress could not possibly have intended for FDA to exercise oversightgiven its ignorance of patents:

FDA’s experience implementing the patent certification provisionssuggests that where the patent owner and generic applicant disagreeas to the applicability of a use patent, the patent owner may seek tohave FDA intervene, by alleging that the generic applicant has notcomplied with the patent certification and notification provisions ofthe act. Because FDA has no expertise in the field of patents, theagency has no basis for determining whether a use patent covers theuse sought by the generic applicant. Nor does FDA believe thatCongress intended the patent provisions of Title I of the 1984Amendments to require the agency to make such determinations.On the contrary, the 1984 Amendments are plainly structured to al-low any patent disputes to be litigated in federal court.85

This analysis of Congressional intent ignores significant features of thestatute. The only patent disputes that the Hatch-Waxman Act directed to thecourts were patent infringement actions based on the filing of an ANDA.Congress did nothing to provide for litigation of disputes about the applica-bility of particular use patents to particular ANDAs. Indeed, quite the con-trary, by allowing section viii statements rather than paragraph IVcertifications for irrelevant method of use patents, the Hatch-Waxman Actseems if anything to divert these disputes away from litigation. If an ANDAapplicant may use a section viii statement to avoid a method of use patent, itneed not include a paragraph IV certification for that patent nor give notice

84. 1994 Final, supra note 54, §§ III.I.72, III.I.76.85. 1989 Final, supra note 54, § III.Q.3.


of the basis for its argument that the patent is invalid or not infringed.86 Thepatent will not cause FDA to enter a thirty-month stay against approval ofthe ANDA, and the section viii statement will not provide a basis for anaward of generic exclusivity. If Congress intended for the courts to resolvedisputes about whether particular method of use patents should trigger theseconsequences, they might have extended to section viii statements the sameprovisions that promote patent infringement litigation following paragraphIV certifications.

The boundaries that FDA sets on its role in administering the patentprovisions of the Hatch-Waxman Act cannot be fully explained as a matterof necessary inference from the structure of the statute. A more plausibleexplanation is its own preference to avoid engaging the merits of any disputeinvolving patents. Either way, its bottom line has been consistent and clear:FDA will not read patents.

B. Deference to Innovators

If FDA is unwilling to provide administrative oversight, and if judicialreview is unavailable (or untimely), who determines which patents get theHatch-Waxman boost? For the most part FDA defers to the innovators thatsubmit the patent information. If FDA receives a complaint that a patent isimproperly listed, it forwards it to the NDA holder and asks if they want tomake any changes:

[I]f an applicant disputes the accuracy or relevance of patent infor-mation, it should first notify FDA in writing and state the reasonsfor the disagreement. FDA will then request that the relevant NDAholder confirm the validity of the patent information, but will notchange the patent information itself unless the NDA holder with-draws or amends the patent information. The agency believes thatthese procedures for determining the validity of patent informationare sufficient.87

The insufficiency of these procedures soon became manifest as firmstook advantage of the lack of administrative oversight to gain the Hatch-

86. Caraco Pharm. Labs, Ltd. v. Novo Nordisk A/S, 132 S. Ct. 1670, 1676–77 (2012).See 21 U.S.C. § 355(j)(2)(A)(vii)–(viii) (2012).

87. 1994 Final, supra note 54, § III.I.64; 21 C.F.R. § 314.53(f) (2014). FDA has re-cently proposed a modest change in this rule that would allow it instead to defer to the ANDAapplicant’s interpretation of the scope of the patent if the NDA holder “fails to timely respondto FDA’s request . . . or submits a revision to the use code that does not provide adequateclarity for FDA to determine whether [a section viii statement] would be appropriate based onthe NDA holder’s use code and approved labeling.” Abbreviated New Drug Applications and505(b)(2) Applications; Proposed Rule, 80 Fed. Reg. 6802, 6827–28 (Feb. 6, 2015) [hereinaf-ter 2015 Proposed]. See infra notes 146–56 and accompanying text.


Waxman boost for dubious patent listings.88 Frustrated ANDA applicantswere unable to persuade the courts to compel FDA or NDA holders to re-move improperly listed patents from the Orange Book. One obstacle was apre-Hatch-Waxman provision in the Food, Drug, and Cosmetic Act (FDCA)that limits enforcement to proceedings “by and in the name of the UnitedStates.”89 The Federal Circuit relied on this provision in MylanPharmaceuticals v. Thompson to reject a private action brought by anANDA applicant against an innovator and FDA to compel “delisting” of apatent added to the Orange Book eleven hours before an ANDA was tobecome effective.90 The Federal Circuit concluded that the action was inessence an impermissible attempt to assert a private right of action for delist-ing a patent under the FDCA.91

ANDA applicants had no more success suing FDA under the Adminis-trative Procedure Act92 to compel it to delist patents that do not satisfy therequirements for listing.93 The Federal Circuit in Apotex v. Thompson94 andthe Fourth Circuit in aaiPharma v. Thompson95 both concluded that the textof the Hatch-Waxman Act leaves it unclear whether Congress intended forFDA to review patents proffered for listing in the Orange Book,96 and thatFDA’s interpretation of the ambiguous statute was entitled to deference.97

Both courts, however, noted that FDA’s interpretation left an enforcementgap that Congress or FDA might wish to close.98 In a concurring opinion inApotex v. Thompson, Judge Plager observed that FDA’s practice was a

88. Some of these controversies are reviewed in JOHN R. THOMAS, PHARMACEUTICAL

PATENT LAW 327–47 (2d ed. 2010). See also Colleen Kelly, The Balance Between Innovationand Competition: The Hatch-Waxman Act, the 2003 Amendments, and Beyond, 66 FOOD &DRUG L.J. 417 (2011).

89. 21 U.S.C. § 337(a) (2012). Some provisions may also be enforced by the states. Id.§ 337(b).

90. 268 F.3d 1323, 1329–30 (Fed. Cir. 2001). The Federal Circuit reversed a DistrictCourt decision granting a preliminary injunction against the innovator in a declaratory judg-ment action based on its assessment that the ANDA applicant was likely to succeed in provingthat the patent (which covered a metabolite of the drug) was not properly listed in the OrangeBook because it did not claim the approved drug or a method of using the approved drug. 139F. Supp. 2d 1 (D.D.C. 2001), rev’d, 268 F.3d 1323 (Fed. Cir. 2001).

91. 268 F.3d at 1330–32.92. 5 U.S.C. §§ 701–06 (2012).93. Apotex, Inc. v. Thompson, 347 F.3d 1335 (Fed. Cir. 2003).94. Id. at 1348.95. 296 F.3d 227, 238 (4th Cir. 2002). The facts of aaiPharma Inc. v. Thompson are

unusual in that the plaintiff, aaiPharma, was not an ANDA applicant seeking to delist animproperly listed patent, but rather a patent holder complaining that the NDA holder, Lilly,refused to submit its patent for listing. The court noted that it was unclear why aaiPharma,which did not have its own product ready for market, was interested in securing a 30-monthstay, id. at 233 n.3, nor why Lilly, which might benefit from the stay, refused to listaaiPharma’s patent. Id. at 234 n.4.

96. aaiPharma, 296 F.2d at 238; Apotex, 347 F.3d at 1348.97. 347 F.3d at 1349.98. 296 F.3d at 242–43.


“poorly conceived administration of the laws.”99 Judge Plager thought it rea-sonable to expect FDA to “have on its staff a handful of competent patentanalysts, who, at a minimum, could make an initial judgment about the pro-priety of a listing,” and concluded, “[i]f neither the Administration nor thecourts see fit to make clear FDA’s obligation to administer the Act in aresponsible way, Congress should consider doing so.”100

C. FTC Investigation and FDA Response

FDA’s refusal to take a larger role in administering the patent provisionsof the Hatch-Waxman Act enabled firms to claim the Hatch-Waxman boostfor their patents free of effective oversight. In a 2002 report, FTC made anumber of recommendations to address anticompetitive abuses of the Hatch-Waxman Act.101 Several recommendations specifically addressed improperlisting of patents in the Orange Book. The report recommended that only onethirty-month stay be allowed per ANDA, that the requirements for listingpatents in the Orange Book should be clarified, and that generics should beable to challenge patent listings in counterclaims to infringement actions.The FTC followed up with a Citizen Petition102 to FDA asking it to clarifyOrange Book listing requirements.103 FDA responded by amending its regu-lations104 to limit the kinds of patents that could be listed in the OrangeBook105 and to limit an NDA holder to a single opportunity for a thirty-month stay against an ANDA.106 But FDA held firm in its refusal to create

99. 347 F.3d at 1353 (Plager, J., concurring).100. Id. at 1353–54.101. FED. TRADE COMM’N, GENERIC DRUG ENTRY PRIOR TO PATENT EXPIRATION: AN

FTC STUDY (2002).102. FDA regulations permit any person to submit a citizen petition to FDA asking the

Commissioner to issue, amend, or revoke any order or to take or refrain from taking any otherform of administrative action. 21 C.F.R. § 10.30.

103. FTC Staff’s Citizen Petition on the Listability of Certain Patents in the Orange Book(May 16, 2001), set forth in Appendix F to FTC Study, id. at 108.

104. See 2002 Proposal, supra note 54; 2003 Final, supra note 54.105. The revised regulations specify that patents claiming packaging, metabolites, and

intermediates do not qualify for listing in the Orange Book and may not be submitted, but thatpatents with “product by process” claims on a drug substance (i.e., product claims that definethe patented product by reciting the process used to create that product) and patents “that claima drug substance that is the same as the active ingredient that is the subject of the [NDA]” areproperly listed. 2003 Final, supra note 54, at 36,678–79; 21 C.F.R. § 314.53(b)(1)–(2) (2014).In the case of patents on polymorphs of an approved drug that the NDA holder asserts are “thesame as the active ingredient that is the subject of the [NDA],” FDA requires that the applicantcertify that it has test data “demonstrating that a drug product containing the polymorph willperform the same as the drug product described in the new drug application,” 21 C.F.R.§ 314.53(b)(1), but the rule does not require submission of the test data to FDA.

106. 2003 Final, supra note 54, at 36,688–94; 2002 Proposal, supra note 54, at65,454–56. This interpretation of the Hatch-Waxman provisions was superseded by amend-ments enacted as part of MMA 2003, supra note 68, that achieve a similar effect by limitingthe 30-month stay to patents that were submitted to FDA prior to the date on which a substan-tially complete ANDA was submitted. 21 U.S.C. § 355(j)(5)(B)(iii) (2012).


an administrative process to challenge patent listings or to remove improp-erly listed patents from the Orange Book.

Rather than taking administrative responsibility for monitoring patentsubmissions, FDA sought to bring about voluntary compliance by requiringthat patent submissions be accompanied by detailed “declaration forms” ad-dressing specific questions about the patent claims and attesting to the accu-racy of the submitted information under penalty of perjury.107 The FDAforms warn that a willfully and knowingly false statement is a criminal of-fense. For method of use patents, submitters must identify specific patentclaims that relate to specific sections of the drug label corresponding to theclaimed method of use.108 FDA also added a requirement for applicants toinclude on the form a description of the method of use in 240 characters orless that would serve as a “use code” for publication in the Orange Book.FDA relies on use codes rather than reading patents to determine whether amethod of use patent is relevant to a particular ANDA. If the use codedrafted by the NDA holder suggests that the patent covers a method of usefor which the ANDA seeks approval, then the applicant must submit a sec-tion vii certification for the patent, triggering the Hatch-Waxman boost.109 Ifthe use code indicates that the patent is not relevant to a particular ANDA,the ANDA applicant may avoid the Hatch-Waxman boost by instead submit-ting a section viii statement that the patent “does not claim a use for whichthe applicant is seeking approval” in the ANDA,110 and the ANDA may beapproved without delay.

Assigning the task of drafting use code descriptions to NDA holdersintroduced new opportunities for strategic behavior and represented a furtherretreat from oversight of the Orange Book on the part of FDA. FDA hadpreviously drafted use code descriptions itself on the basis of informationsubmitted by NDA applicants.111 But in 2003, FDA concluded that it was“most consistent with the general balance adopted in Hatch-Waxman” toleave it to innovators to characterize the scope of their patent rights, subjectto resolution of infringement disputes in the courts.112 This new form of pat-ent punting by FDA allowed patent holders to paraphrase their claims so asto maximize the Hatch-Waxman boost.

FDA rejected calls for an administrative process for challenging patentlistings, noting that courts had upheld its determination that its role with

107. 2003 Final, supra note 54, at 36, 685–86; 21 C.F.R. § 314.53(b) (2014). The currentforms are available at http://www.fda.gov/downloads/AboutFDA/ReportsManualsForms/Forms/UCM048345.pdf and http://www.fda.gov/downloads/AboutFDA/ReportsManualsForms/Forms/UCM048352.pdf.

108. 21 C.F.R. § 314.53(c)(2)(i)(O)(1)–(2) (2014).109. See supra notes 41–45 and accompanying text.110. 2003 Final, supra note 54, at 36,682–85; 21 C.F.R. § 314.53(c)(2)(i)(O) (2014).111. 2003 Final, supra note 54, at 36,683.112. Id. at 36,682.


respect to patent listings is ministerial,113 and insisted that “it would be inap-propriate and impractical for us to create regulatory mechanisms for review-ing patent listings” because “[w]e lack both the resources and the expertiseto resolve such matters.”114 FDA worried that if it took a larger role, its“decisions on patent listing matters would inevitably lead to disputes andincreased litigation against us,” with no assurance that ANDAs would beapproved sooner.115

D. The Inadequate Counterclaim Remedy

Shortly after FDA came out with its 2003 Final Rule, Congressamended the Hatch-Waxman provisions as part of the Medicare PrescriptionDrug, Improvement and Modernization Act (MMA) of 2003116 to addresspast abuses highlighted in the FTC report.117 The MMA provided that anANDA applicant sued for patent infringement “may assert a counterclaimseeking an order requiring the holder to correct or delete the patent informa-tion [in the Orange Book] on the ground that the patent does not claim ei-ther—(aa) the drug for which the application was approved; or (bb) anapproved method of using the drug.”118 As soon became apparent, this lim-ited counterclaim remedy was inadequate to correct the problems created byFDA’s failure to exercise timely oversight of patent listings.

This provision has not been extensively used, perhaps because it doesnot offer effective relief against the harm caused by inappropriate patentlistings. A counterclaim is only available to an infringement defendant thathas already been sued, providing no help to an ANDA submitter who wouldprefer to avoid triggering litigation by submitting a section viii statement(that the patent is irrelevant) rather than a paragraph IV certification (that thepatent is invalid or not infringed). Moreover, the only remedy available forthe counterclaim—a court order119 to correct the information in the Orange

113. Id. at 36,683.114. Id.115. Id.116. MMA 2003, supra note 68.117. For a review and analysis of these statutory changes and a comparison to FDA’s

regulatory approach, see Colleen Kelly, The Balance Between Innovation and Competition:The Hatch-Waxman Act, the 2003 Amendments and Beyond, 66 FOOD & DRUG L.J. 417,432–45 (2011). The most significant legislative changes limited the availability of a 30-monthstay to those patents listed in the Orange Book before submission of a substantially completeANDA, 21 U.S.C. § 355(j)(5)(B)(iii) (2012); the addition of forfeiture provisions that wouldcause an ANDA applicant to forfeit its right to claim 180-day exclusivity upon the occurrenceof one of a list of “forfeiture events,” id. § 355(j)(5)(D); provisions for filing declaratory judg-ment actions and counterclaims to correct or delete patent information submitted to FDA, id.§ 355(j)(5)(C); and a requirement that certain patent settlement agreements be filed with theJustice Department or the Federal Trade Commission, MMA 2003, supra note 68,§ 1112(a)(1).

118. 21 U.S.C. § 355(j)(5)(c)(ii) (2012).119. The statute explicitly prohibits a damage award. Id. § 355(j)(5)(c)(iii).


Book—cannot undo the harm to an ANDA filer who asserts that the patentshould not have triggered the Hatch-Waxman boost in the first place.120 Priorto 2012, some infringement defendants may also have been deterred fromusing the counterclaim by a restrictive reading of its terms by the FederalCircuit in Novo Nordisk v. Caraco Pharmaceutical Laboratories,121 later re-versed by the Supreme Court.

The facts of Novo Nordisk v. Caraco illustrate how little the courts cando to correct a problem arising from patent punting by FDA in the face of anNDA holder’s strategic behavior. Novo Nordisk held an approved NDA onthe drug repaglanide, authorizing it to market the drug for use in three differ-ent ways: (1) repaglanide monotherapy (i.e., repaglinide alone); (2) repagli-nide in combination with metformin; and (3) repaglinide in combinationwith thiazolidinediones. Novo Nordisk had a method of use patent (the ‘358patent)122 that claimed:

a method for treating non-insulin dependent diabetes mellitus(NIDDM) comprising administering to a patient in need of suchtreatment repaglinide in combination with metformin.123

When it submitted the ‘358 patent for listing in the Orange Book, NovoNordisk provided the following straightforward use code narrative on theFDA form:

Use of repaglinide in combination with metformin to lower bloodglucose.

Caraco initially included a paragraph IV certification for the ‘358 patentin its ANDA for repaglinide in 2005, and Novo Nordisk sued Caraco forinfringement. Following a suggestion from FDA, Caraco later amended itsANDA to submit a section viii statement declaring that it did not seek ap-proval for the use of repaglinide in combination with metformin.124 NovoNordisk then changed its use code narrative for the patent to the followingbroader language, which greatly exceeded the scope of the actual claim:

A method for improving glycemic control in adults with type 2 dia-betes mellitus.

120. See supra notes 67–69 and accompanying text.121. Novo Nordisk A/S v. Caraco Pharm. Labs., Ltd., 656 F. Supp. 2d 729 (E.D. Mich.

2009), rev’d, 601 F.3d 1359 (Fed. Cir. 2010), rev’d sub nom. Caraco v. Novo Nordisk, 132 S.Ct. 1670 (2012).

122. U.S. Patent No. 6,677,358 (filed Dec. 13, 1999).123. Id. col. 10, l. 35. The ‘358 Patent also included product claims to a combination of

repaglinide and metformin.124. Novo Nordisk, 601 F.3d 1367, 1379 n. 16 (Fed. Cir. 2010) (Dyk, J., dissenting).


In light of this change, FDA disallowed Caraco’s section viii statement,because the revised use code obscured the fact that the patent was limited toa use (replaglinide in combination with metformin) for which the ANDA didnot seek approval. Having previously suggested (on the basis of the prior usecode narrative) that Caraco could use a section viii statement, FDA wassurely aware of the possibility that the broadened use code narrative misrep-resented the claims of the underlying patent, in violation of its regulations.125

But FDA would not police compliance with its own patent regulations andwould not read the patent claims. Instead, it simply deferred to the NDAholder’s characterization of what its patent covers.126

Unable to get relief from FDA, Caraco filed a counterclaim to compelNovo Nordisk to change back to the original use code. The District Courtfound that the revised use code narrative “seriously misrepresents the ap-proved method of use covered by [the patent claim]”127 and concluded thatCaraco was entitled to an order requiring Novo to correct the patent informa-tion it had submitted to FDA.128 A divided Federal Circuit panel reversed.129

The panel majority held that the statutory counterclaim is available only ifthe patent fails to claim either the drug or any approved method of using thedrug, and therefore provided no remedy against listing the ‘358 patent.130

The majority also held that the only “patent information” that may be de-leted or corrected by counterclaim is the “patent number and expirationdate” that the statute explicitly requires NDA holders to disclose,131 not theuse code narratives that FDA regulations require.132

A unanimous Supreme Court reversed on both grounds, interpreting thestatute to permit a counterclaim for correction of an overly broad usecode.133 This interpretation allows the courts to order correction of listings,but judicial attention will likely come too late to correct the damage thatcould have been averted through timely FDA oversight. In a concurringopinion, Justice Sotomayor lamented that the statutory counterclaim was an

125. 21 C.F.R. § 314.53(b)(1) (2014) (“The applicant shall separately identify each pend-ing or approved method of use and related patent claim. For approved applications, the appli-cant submitting the method-of-use patent shall identify with specificity the section of theapproved labeling that corresponds to the method of use claimed by the patent submitted.”).

126. Id. § 314.53(f).127. Novo Nordisk A/S v. Caraco Pharm. Labs., Ltd., 656 F. Supp. 2d 729, 730 (E.D.

Mich. 2009).128. Id.129. Novo Nordisk A/S v. Caraco Pharm. Labs., Ltd., 601 F.3d 1359 (Fed. Cir. 2010)

(Rader, J., majority opinion); 601 F.3d at 1367 (Clevenger, J., concurring); 601 F.3d at 1368(Dyk, J., dissenting).

130. Id. at 1364–66. The majority thought that an infringement defendant that does notseek approval for the patented use can assert as much in a paragraph IV certification and proveit in an infringement action. Id. at 1365.

131. 21 U.S.C. § 355(b)(1)(G) (2012).132. Novo Nordisk, 601 F.3d at 1366–67.133. Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 132 S. Ct. 1670 (2012).


imperfect solution to the problem created by the overly broad use code, re-quiring expensive and time-consuming litigation, and called upon Congressor FDA to come up with a better solution.134 The majority observed in afootnote that the propriety of “FDA’s view of its ministerial role” was notbefore it,135 leaving open the possibility of requiring FDA to take a moreactive role in the future.

The use code system that allowed Novo Nordisk to misrepresent thescope of its patent claims to defer generic competition is not required by theHatch-Waxman Act, but rather is an administrative innovation designed byFDA to spare itself from having to read patent claims to determine what theycover. As FDA explained in the Preamble to its 2003 rule changes, use codesare designed to clarify “whether an ANDA applicant can ‘carve out’ themethod of use [i.e., use a section viii statement] rather than certify to thelisted patent.”136 The statute requires an ANDA to include a certificationonly “with respect to each patent which claims the listed drug . . . or whichclaims a use for such listed drug for which the applicant is seeking ap-proval.”137 If a listed patent only claims a use for which the applicant is notseeking approval, the applicant may say so in a section viii statement,138

without triggering the Hatch-Waxman boost.139

This is a crucial distinction. When an ANDA includes a paragraph IVcertification, the Hatch-Waxman Act diverts disputes about validity and in-fringement to litigation.140 But when FDA implemented the use code system,nothing in the Hatch-Waxman Act diverted disputes about the proper use ofa section viii statement to the courts for litigation, and it is unlikely that thecourts would have recognized such a claim.141 A patent holder could sue anANDA applicant who has used a section viii statement for patent infringe-ment (although it would lose on the merits if the patent in fact does not claim

134. Id. at 1688–89 (Sotomayor, J., concurring).135. Id. at 1677 n.2.136. 2003 Final, supra note 54, at 36,682.137. 21 U.S.C. § 355(j)(2)(A)(vii) (2012) (emphasis added).138. Id. § 355(j)(2)(A)(viii).139. 2003 Final, supra note 54, at 36,682.140. FDA relies on these provisions to support its position that the Hatch-Waxman Act

does not contemplate anything beyond a “ministerial” role for FDA with respect to patents.See, e.g., 2003 Final, supra note 54, at 36,683 (“A fundamental assumption of the Hatch-Waxman Amendments is that the courts are the appropriate mechanism for the resolution ofdisputes about the scope and validity of patents. The courts have the experience, expertise, andauthority to address complex and important issues of patent law.”).

141. Prior to the 2003 amendments, courts repeatedly held that neither the FFDCA northe Patent Act provides a private cause of action for delisting patents from the Orange Book,see supra notes 89–98 and accompanying text. But in one particularly egregious case anANDA applicant brought a successful claim against FDA under the Administrative ProcedureAct alleging that FDA’s refusal to accept a section viii statement rather than a paragraph IVcertification was “arbitrary and capricious.” Purepac Pharm. Co. v. Thompson, 354 F.3d 877,883–84 (D.C. Cir. 2004).


a use for which the ANDA seeks approval).142 But such an infringementaction would not give the courts an occasion to address whether the partieswere entitled to the Hatch-Waxman boost. The statute makes these benefits(notice, thirty-month stay, generic exclusivity) available without the need forjudicial action, but only when an ANDA includes a paragraph IV certifica-tion that the patent is invalid or not infringed. And the statute requires such acertification only “with respect to each patent which claims the listeddrug . . . or which claims a use for such listed drug for which the applicant isseeking approval” in the ANDA.143 If FDA allows a patent holder to claimthe Hatch-Waxman boost for a patent that is not entitled to those benefits,there is little that courts can do to fix the problem by the time it gets to theirattention. Only FDA can exercise effective oversight.

In 2015, twelve years after passage of the MMA, FDA published a pro-posed rule to revise its ANDA regulations once again.144 The proposed rulecontinues to exempt FDA from any obligation to read submitted patents todetermine what they claim. But FDA also took note of the Supreme Court’sobservation in Caraco that “an overbroad use code . . . throws a wrench intothe FDA’s ability to approve generic drugs as the statute contemplates.”145

To address this problem, the 2015 Proposed Rule would make severalchanges. First, it would “codify our longstanding requirement that the NDAapplicant’s [use code] . . . must contain adequate information to assist FDAand . . . ANDA applicants in determining whether [the patent] claims a usefor which the . . . ANDA applicant is not seeking approval.”146 In particular,it would require that if the patent claim does not cover every use of the drug,“the applicant must only identify the specific portion(s) of the indication orother condition of use claimed by the patent.”147 Second, in the event that athird party disputes the accuracy or relevance of the submitted patent infor-mation, the proposed rule would give the NDA holder thirty days to confirmthe correctness of the patent information and to provide information on thespecific approved use claimed by the patent that enables FDA to make adetermination of whether the patent may be avoided through use of a section

142. Under 35 U.S.C. § 271(e)(2)(A), added as part of the Hatch-Waxman Act, submit-ting an ANDA “for a drug claimed in a patent or the use of which is claimed in a patent”counts as an act of infringement. The Federal Circuit has clarified that submission of anANDA that does not seek approval for the patented use does not count as an act of infringe-ment under this provision. Bayer Schering Pharma. AG v. Lupin, 676 F.3d 1316 (Fed. Cir.2012); Astrazeneca Pharma. LP v. Apotex Corp., 669 F.3d 1370 (Fed. Cir. 2012).

143. See, e.g., Purepac Pharm. Co. v. Thompson, 354 F.3d 877 (D.C. Cir. 2004) (NDAholder listed a patent in the Orange Book for an unapproved method of use of listed drug; twocompeting generics submitted ANDAs, one with a paragraph IV certification for that patentand the other with a section viii statement for the same patent).

144. See 2015 Proposed, supra note 87.145. Id. at 6820–21, citing Caraco, 132 S. Ct. at 1684.146. Id. at 6820.147. Id. See text of proposed § 314.53(c)(2)(i)(O)(2) and § 314.53(c)(2)(ii)(P)(2), id. at

6882–84.


viii statement.148 Third, and potentially the most significant of the proposedchanges, if the NDA holder either fails to submit a timely response or re-sponds in a way that fails to provides adequate clarity for FDA to determinewhether a section viii statement is appropriate, FDA would review theANDA with deference to the ANDA applicant’s interpretation of the scopeof the patent.149 This represents a marked turnaround from FDA’s currentpolicy of deference to NDA holders.150 In 2002, when it proposed the currentversion of the rule, FDA rejected the possibility of deference to ANDA ap-plicants in the belief that they could not resist the temptation to cheat:

If ANDA . . . applicants could always avoid the possibility of a 30-month stay by asserting in a section viii statement that certain label-ing for which the applicant is seeking approval is not protected by alisted method-of-use patent—despite the NDA holder’s assertion tothe contrary—there would be little reason for any applicant to sub-mit a paragraph IV certification for a method-of-use patent. Thisapproach would essentially eliminate the certification, notice, andlitigation process as to any listed method-of-use patent, producingan outcome that is inconsistent with the [Hatch-Waxman] act.151

In justifying its 2015 proposal, FDA tells a very different story in whichan ANDA applicant “has a strong incentive to interpret the scope of thepatent correctly to avoid being subject to patent infringement litigation fol-lowing ANDA approval and potentially enjoined from marketing its prod-uct.”152 ANDA applicants have another reason to avoid improper use ofsection viii statements in lieu of paragraph IV certifications: generic exclu-sivity is only available for an ANDA that includes a paragraph IV certifica-tion.153 Perhaps FDA also recognizes that NDA holders have a strongincentive to submit broad use codes in order to trigger the Hatch-Waxmanboost, as suggested by the reference to the Caraco case in the ProposedRule.

The proposed shift from deference to NDA holders to deference toANDA applicants will surely provoke opposition from NDA holders andmay not be implemented. FDA suggests that NDA holders can make defer-ence to ANDA holders unnecessary by avoiding the use of overbroad usecodes:

FDA believes that enhancing the mechanism for challenging over-broad use codes listed in the Orange Book may cause NDA holders

148. Id. at 6827; text of proposed § 314.53(f)(1), id. at 6885.149. Id. at 6827.150. 2003 Final, supra note 54, at 36,682.151. Id.152. 2015 Proposed, supra note 87, at 6828.153. See supra notes 47–53 and accompanying text.


to be more circumspect in their original submission of patent infor-mation to FDA. Accordingly, we expect that there will rarely be aneed for the Agency to review the proposed labeling for the . . .ANDA with deference to the . . . ANDA applicant’s interpretationof the scope of the patent. However, we invite comment on thisproposed approach to enhancing FDA’s response to challenges tothe accuracy or relevance of submissions of patent information tothe Agency, while maintaining the Agency’s ministerial role in pat-ent filing.154

In other words, FDA is open to considering any approach that does notrequire it to read patents. But so long as FDA is unwilling to read patentclaims to determine their relevance to NDAs and ANDAs, whichever defaultrule it chooses will empower one side or the other to take advantage ofFDA’s deference. In 2002 and 2015, FDA made different proposals based onits belief about which party had a better incentive to characterize the cover-age of the patent accurately. Given FDA’s own interest in maintaining its“purely ministerial role” in patent matters, it is surely tempted to underesti-mate the likely errors from a rule of deference, whichever side it defers to.

Another factor to consider in picking a rule of deference is which ap-proach makes it easier to correct the inevitable errors. The errors arisingfrom deference to overly broad use codes are effectively uncorrectable. Eventhough the Supreme Court eventually interpreted the 2003 statutory counter-claim provision to permit judicial orders to correct use codes, it provides alimited remedy that comes too late to undo the effects of the Hatch-Waxmanboost. On the other hand, errors arising from deference to improper use ofsection viii statements can be corrected in patent infringement litigationagainst the ANDA applicant.155 If the patent holder is correct that the ANDAseeks approval for a patented use of the drug, the courts have jurisdiction toresolve the matter.156 The proposed change may thus reduce the incidence ofirremediable harms in comparison to the current rule. But FDA could do abetter job of distinguishing which patents are relevant to which NDAs andANDAs if it were willing to read the patents itself instead of deferring to theassessments of interested parties.

III. SETTLEMENTS AND PATENT PUNTING BY

ANTITRUST COURTS

Many litigated cases never reach adjudication on the merits and are in-stead resolved by settlements on terms that defer competition. Some of thesecases have provoked scrutiny under antitrust laws, presenting antitrust courts

154. 2015 Proposed, supra note 87, at 6828.155. 35 U.S.C. § 271(e)(2).156. See infra notes 261–271 and accompanying text.


with the question of whether and how far the patent rights at stake in thelitigation protect the parties from antitrust liability for settling the dispute.These antitrust cases could provide another opportunity to consider whetherthe settlement reflects a fair compromise of the underlying patent dispute,but instead they have become another arena for patent punting.

A. Incentives for Collusive Settlements

Pharmaceutical firms quickly realized that patent infringement litigationagainst the backdrop of the Hatch-Waxman boost did not have to be a zero-sum game. Rather than pursuing costly and risky litigation to final judgmentfor one side or the other, the innovator and generic firms could settle andsplit the rents. The terms of these settlements have differed from case tocase—and may be increasingly variable as a result of recent antitrust devel-opments—but in a recurring pattern the generic gives up its challenge to thepatent and agrees to defer pursuit of its ANDA, perhaps until the end of thepatent term, in exchange for a payment from the innovator to the generic.

These arrangements, sometimes called “reverse payment” or “pay-for-delay” agreements,157 have drawn extensive antitrust scrutiny, as detailed inthe next Part. It is not difficult to understand why such settlements would beof interest to antitrust enforcers. If, but for the settlement, the defendantwould have entered the market in competition with the plaintiff, a paymentby a market incumbent to keep a potential entrant off the market looks likeordinary collusion to avoid competition. But the existence of patents compli-cates the story, because the patent holder is asserting a legal right to excludecompetitors from the market in the infringement action. If the patent is valid,and if the generic product would infringe, the patent holder has a right toexclude the generic until the patent expires. On the other hand, if the patentis invalid, or if the generic product would not infringe the patent, the patentholder should lose the infringement action. Uncertainty about how these is-

157. A sampling of the voluminous literature on patent settlements includes Joseph F.Brodley and Maureen A. O’Rourke, Preliminary Views: Patent Settlement Agreements, 16ANTITRUST 53 (2002); Jeremy I. Bulow, The Gaming of Pharmaceutical Patents, (StanfordGraduate Sch. of Bus., Research Paper No. 1804, 2003), available at http://www.gsb.stanford.edu/faculty-research/working-papers/gaming-pharmaceutical-patents; Thomas F. Cotter, Re-fining the “Presumptive Illegality” Approach to Settlements of Patent Disputes Involving Re-verse Payments: A Commentary on Hovenkamp, Janis and Lemley, 87 MINN. L. REV. 1789(2003); Daniel A. Crane, Exit Payments in Settlement of Patent Infringement Lawsuits: Anti-trust Rules and Economic Implications, 54 FLA. L. REV. 747 (2002); C. Scott Hemphill, Pay-ing for Delay: Pharmaceutical Patent Settlement as Regulatory Design Problem, 81 N.Y.U. L.REV. 1553 (2006); Herbert Hovenkamp et al., Anticompetitive Settlement of Intellectual Prop-erty Disputes, 87 MINN. L. REV. 1719 (2003); Jonathon M. Lace, Responding to Patent Litiga-tion Settlements: Does the FTC Have it Right Yet?, 64 U. PITT. L. REV. 201 (2002); JamesLangenfeld & Wenquing Li, Intellectual Property and Agreements to Settle Patent Disputes:The Case of Settlement Agreements with Payments from Branded to Generic Drug Manufac-turers, 70 ANTITRUST L. J. 777 (2003); Carl Shapiro, Antitrust Limits to Patent Settlements, 34RAND J. ECON. 391 (2003).


sues will be resolved may lead risk-averse parties to settle the litigation—onterms that are likely to include a reverse payment—even if both sides thinkthe patent holder is likely to prevail.

Consider a simplified example. Suppose an innovator has brought a pat-ent infringement suit against a generic that is the first applicant to file anANDA with a paragraph IV certification for that product. If the innovatorprevails in the lawsuit and gets an injunction against generic entry, it willremain the sole source of the drug and can continue to sell at a monopolyprice. Let’s say that is worth $1 billion to the innovator. On the other hand,if the generic prevails, it could enter the market right away,158 and FDAcould not approve another ANDA with a paragraph IV certification for thesame product for 180 days.159 After that period expires, other generics couldbe approved right away, and the drug would promptly become available atcompetitive prices. Let’s say that the generic challenger assesses the value toit of a complete victory, including the 180-day period of generic exclusivity,at $100 million. No money will change hands if the case is litigated to finaljudgment no matter who wins. There is no infringing product on the market,so the innovator cannot recover damages even if it proves that the ANDAproduct would infringe the patent.160 What is at stake is injunctive relief andthe timing of FDA approval of ANDAs.161 The parties are unsure what thecourts will do, and they are risk averse, so they want to settle.

Suppose the plaintiff has a strong legal case on the merits, and bothparties assess the likelihood of a win by the innovator at 80% and the likeli-hood of a win by the generic at 20%. Even for such a strong case, one wouldexpect risk-averse parties to be willing to compromise and settle on termsthat leave each of them somewhat less happy than they would be with a totalvictory. Given that the innovator has much more at stake financially than thegeneric, one might expect the bargain to favor the generic if it plays its handwell. If the parties settle for the expected value of the lawsuit to the generic,one would see a reverse payment of $20 million (20% of $100 million); butthe innovator might be willing to pay as much as $200 million to avoid a20% risk of losing $1 billion. What figure they settle on depends on relativerisk aversion and bargaining skills, but a reverse payment is to be expected

158. 21 U.S.C. § 355(j)(5)(B)(iii)(I) (2012) (“if before the expiration of [the 30-monthstay entered upon filing of an infringement action against the ANDA filer] the district courtdecides that the patent is invalid or not infringed . . . the approval shall be made effective on –(aa) the date on which the court enters judgment reflecting the decision”).

159. Id.160. 35 U.S.C. § 271(e)(4)(C) (2012) (“damages or other monetary relief may be

awarded against an infringer only if there has been commercial manufacture, use, offer to sell,or sale within the United States or importation into the United States of an approved drug”).

161. Id. § 271(e)(4)(B) (“injunctive relief may be granted against an infringer to preventthe commercial manufacture, use, offer to sell, or sale within the United States or importationinto the United States of an approved drug”).


in any case. This is not because the patent case is weak, but because thepatent is valuable.

Nonetheless, antitrust litigation, sometimes initiated by private plaintiffsand sometimes by FTC, followed quickly on the heels of the reverse pay-ments. Antitrust plaintiffs have seen the reverse payment from the patentholder to the alleged wrongdoer as a smoking gun that calls into question themerits of the asserted patent rights, arguing that the underlying infringementclaims must have been frivolous and that the purported settlements are a thincamouflage for improper collusion to delay competition by sharing the rentsfrom invalid patents.

B. The Response of Antitrust Courts

Antitrust courts quickly fell into a circuit split, with some applying a perse rule of illegality for reverse payment agreements and others applying aform of rule of reason analysis that approached per se legality. In no case,however, did the court inquire into the merits of the underlying patent in-fringement case. Like FDA, courts punted on the substantive patent issues.Indeed, patent punting was the one point on which all courts agreed.

The Sixth Circuit spoke first, finding reverse payments per se illegal inIn re Cardizem CD Antitrust Litigation.162 That case grew out of a patentinfringement action brought by Hoechst Marion Roussel, Inc., the manufac-turer of the branded heart medication Cardizem CD, against AndrxPharmaceuticals, Inc., a generic firm that had filed an ANDA seeking ap-proval for a generic version of the drug. The parties reached a settlementpendent lite in which Andrx agreed not to market its generic version ofCardizem CD pending a final adjudication in the infringement action, andnot to waive any of its rights under the Hatch-Waxman Act to a period ofgeneric exclusivity for filing the first ANDA for the product that included aparagraph IV certification challenging the patent.163 In return, Hoechstagreed to make periodic payments to Andrx while the lawsuit remainedpending and to grant it licensing rights in the future. The Sixth Circuit sawthe arrangement as “a horizontal agreement to eliminate competition in themarket” and “a classic example of a per se illegal restraint of trade.”164 Itpointed to the reverse payment and the agreement to retain generic exclusiv-ity in rejecting the argument that the agreement was merely an attempt to

162. In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003).163. 21 U.S.C. § 355(j)(5)(B)(iv). Under the version of the statute in effect at the time,

FDA could not approve another ANDA with a paragraph IV certification for the same productuntil 180 days after the earlier of the date of first commercial marketing of the generic drug orthe date of a court ruling that the patent is invalid or not infringed. See Kelly, supra note 117,at 430–32.

164. In re Cardizem, 332 F.3d at 908.


enforce patent rights or to settle patent litigation, noting that Hoechst paid its“only potential competitor $40 million per year to stay out of the market.”165

Shortly thereafter, the Eleventh Circuit called for “rule of reason” analy-sis in a case involving similar facts, Valley Drug v. Geneva Pharmaceuti-cals.166 Abbott Laboratories had filed patent infringement lawsuits againsttwo companies that submitted ANDAs seeking FDA approval to market ge-neric versions of Abbott’s drug Hytrin. Under the terms of settlement agree-ments, each defendant agreed not to begin marketing a generic version ofHytrin until another party did so first, Abbott’s patent expired, or a courtdeclared the patent invalid, and Abbott agreed to make payments to thegenerics.167 A district court later held Abbott’s patent invalid.168 Pharmaceu-tical wholesalers then sued Abbott and the settling defendants, alleging thattheir settlement agreements were per se violations of § 1 of the ShermanAct. The Eleventh Circuit ultimately held that the arrangement should beevaluated under the rule of reason. The court held that that the reasonable-ness of the agreements should not be condemned because the patent wassubsequently declared invalid, so long as the “exclusionary effects of a set-tlement” were “reasonably within the scope of the patent.”169 The provisionfor reverse payments from the patent holder to the infringers did not call forper se liability under the antitrust laws.170 The court was unable to concludeon the record that the exclusionary effects of the settlement agreements weregreater than the exclusionary effects of the patents, and directed the lowercourt on remand to consider such factors as the magnitude of the reversepayments in relation to the lost profits that would occur if the patent weredeclared invalid, the costs the parties expected to save from not litigating,and the parties’ expectations with respect to the outcome of the patent in-fringement case.171

After the Cardizem and Valley Drug decisions, the FTC condemned areverse payment settlement of a patent infringement action as unlawfulunder the FTC Act in In re Schering Plough.172 Under the settlement at issuein that case, Schering agreed to make payments totaling $60 million to theinfringement defendant Upsher, and Upsher agreed not to market any ge-

165. Id.166. Valley Drug Co. v. Geneva Pharm., Inc., 344 F.3d 1294 (11th Cir. 2003).167. Id. at 1300–01.168. Abbott Labs. v. Geneva Pharm., Inc., 51 U.S.P.Q.2d (BNA) 1301 (N.D. Ill. Aug. 28,

1998).169. Valley Drug, 344 F.3d at 1306–08.170. Id. at 1309–10.171. Id. The Federal Circuit, applying the law of the Second Circuit, reached a similar

result in In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F. 3d 1323 (Fed. Cir.2008). See also In re Tamoxifen Citrate Antitrust Antitrust Litig., 466 F.3d 187 (2d Cir. 2005).

172. Schering-Plough Corp., 136 F.T.C. 956, 1060–61 (2003), available at http://www.ftc.gov/enforcement/cases-proceedings/9910256/schering-plough-corporation-upsher-smith-laboratories-american.


neric version of Schering’s product before September 2001. Upsher also li-censed Schering to market six Upsher products in specified territories.Although the FTC declined to apply a rule of per se illegality, it refused toinquire into the merits of the patent infringement claim in finding the settle-ment unlawful. It held that “it is possible to envision special hypotheticalcases where some payments from pioneers to generics could be efficient andbeneficial to consumers” but found insufficient evidence to support such aclaim in that case.

Schering-Plough appealed the FTC’s order to the Eleventh Circuit,which vacated the Commission’s order.173 The Supreme Court denied certio-rari in 2006174 after the Solicitor General surprisingly broke with the FTCposition, arguing that the Eleventh Circuit’s opinion did not create a directconflict with any other Circuit and that the patent settlements issue was notwell-presented in that case.175 The Solicitor General again reversed course inthe Obama administration, arguing that “reverse payment” agreements arepresumptively unlawful.176 The Eleventh Circuit held firm throughout thesechanges in administration, rejecting FTC’s position yet again in its 2012decision in FTC v. Watson Pharmaceuticals, which held reverse paymentsettlements lawful so long as they fall within the patent’s exclusionarypotential.177

In that case Solvay Pharmaceuticals, the patent holder, brought an in-fringement action against two generic companies that had filed ANDAs forgeneric versions of the pioneer product AndroGel. The patent litigation wasstill pending when the Hatch-Waxman thirty-month stay expired, allowingFDA approval of the ANDAs to become effective. Solvay then entered intosettlement agreements with the generics. The generics agreed not to marketgeneric versions of AndroGel under their ANDAs until 2015 (five yearsbefore the expiration of the patent). Meanwhile, the generics agreed to mar-ket branded AndroGel on behalf of Solvay and to serve as back-up manufac-turers for Solvay, and Solvay agreed to make millions of dollars a year inpayments to the generics.

FTC found the settlement unlawful. On appeal, the Eleventh Circuitheld that an allegation that the patentee was unlikely to win its infringementlawsuit could not establish the illegality of a settlement and reiterated itsholding that “absent sham litigation or fraud in obtaining the patent, a re-

173. Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056, 1071 (11th Cir.2005).

174. Fed. Trade Comm’n v. Schering-Plough Corp., 548 U.S. 919 (2006).175. Brief of United States as amicus curiae, Schering-Plough, 548 U.S. 919 (No. 05-

273), at *33-35, available at http://www.justice.gov/atr/cases/f216300/216358.htm.176. Brief of the United States in Response to the Court’s Invitation, Arkansas

Carpenters Health & Welfare Fund v. Bayer, AG, 625 F.3d 779 (2d Cir. 2010) (Nos. 05-2851-cv(L), 05-2852-cv (CON), 05-2863-cv (CON)), 2009 WL 8385027, at *11.

177. Fed. Trade Comm’n v. Watson Pharm., Inc., 677 F.3d 1298 (11th Cir. 2012).


verse payment settlement is immune from antitrust attack so long as its an-ticompetitive effects fall within the scope of the exclusionary potential of thepatent.”178

In subsequent cases, the Second Circuit analyzed reverse payment set-tlements in much the same way as the Eleventh Circuit,179 while the ThirdCircuit held reverse payment settlements presumptively illegal.180

Finally the Supreme Court agreed to review the issue in the AndroGelcase, which became known as FTC v. Actavis,181 and reversed the EleventhCircuit. In an opinion by Justice Breyer, a five Justice majority held that areverse payment settlement agreement might violate the antitrust laws underrule of reason analysis and that the Eleventh Circuit should therefore haveallowed the FTC’s lawsuit to proceed.182 But the majority made clear thatrule of reason analysis is not likely to require determining whether the un-derlying patent action was meritorious in order to decide whether a settle-ment with a reverse payment was reasonable. Instead, the Court invited theantitrust courts to continue to punt on patent analysis, at least when the set-tlement involves a payment from the plaintiff to the defendants.

The majority opinion appears to acknowledge the rights conferred by apatent as conferring immunity under the antitrust laws, but it nonethelesssteered the courts away from analyzing the merits of the underlying patentdispute in a number of ways. For one thing, it called for a balance of thepolicies of the patent laws with the policies of the antitrust laws in decidingwhether the settlement agreement is within the scope of the patent,183 leavingopen the possibility that a pay-for-delay settlement might still violate theantitrust laws even if the patent were valid and infringed. In rejecting theEleventh Circuit’s approach, however, the majority noted that an invalid pat-ent confers no right to exclude competitors and that “even a valid patentconfers no right to exclude products or processes that do not actually in-fringe,”184 suggesting that perhaps the validity and scope of the patent matterand should therefore be considered. Yet the majority did not fault the Elev-enth Circuit for failing to consider whether the ANDA product would haveinfringed the patent. Instead, the majority acknowledged the circuit court’sconcern that antitrust litigation should not require costly and complex re-litigation of the settled patent infringement action within the antitrust ac-

178. Id. at 1312.179. In re Tamoxifen Citrate Anitrust Litig., 429 F.3d 370, 396–97 (2d Cir. 2005).180. In re K-Dur Antitrust Litig., 686 F.3d 197, 218 (3d Cir. 2012).181. 133 S. Ct. 2223 (2013).182. Id. at 2225; see also id. at 2233 (characterizing prior cases as seeking “to accommo-

date patent and antitrust policies, finding challenged terms and conditions unlawful unlesspatent law policy offsets the antitrust law policy strongly favoring competition.”).

183. Id. at 2231 (“[T]his Court has indicated that patent and antitrust policies are bothrelevant in determining the ‘scope of the patent monopoly’—and consequently antitrust lawimmunity—that is conferred by a patent.”).

184. Id.


tion,185 but concluded that “it is normally not necessary to litigate patentvalidity to answer the antitrust question.”186 The Eleventh Circuit’s approachof immunizing reverse payment settlements from antitrust attack to avoidhaving to address the patent issues thus “throws out the baby with the bathwater.”187 Instead, the Court suggested as an administratively feasible alter-native that courts look to the size of the reverse payment as an indicationthat the patent case lacked merit: “An unexplained large reverse paymentitself would normally suggest that the patentee has serious doubts about thepatent’s survival,” and the size of the reverse payment thus “can provide aworkable surrogate for a patent’s weakness, all without forcing a court toconduct a detailed exploration of the validity of the patent itself.”188

The Court presented its own approach as an application of the rule ofreason, in contrast to the Eleventh Circuit’s approach of near-automatic anti-trust immunity to reverse payment settlements.”189 But if the reverse pay-ment alone will support an inference that the patent was weak without theneed for “detailed exploration,” the majority’s approach treads close to a perse rule against reverse payment settlements. The Court put forth the possibil-ity that reverse payments may sometimes be justified, notwithstanding theiranticompetitive effects. A reverse payment, for example, may amount to nomore than a rough approximation of the litigation expenses saved throughthe settlement, or it may reflect compensation for other services that thegeneric has promised to perform—such as distributing the patented productor helping to develop a market for it.190

Notably absent from the Court’s list of justifications for a reverse pay-ment is a patent holder’s wish to avoid the risk that a valuable patent will beheld invalid, with a resulting loss of expected revenues. Indeed, the Courtsaid that if the reason for the reverse payment is “a desire to maintain and toshare patent-generated monopoly profits, then, in the absence of some otherjustification, the antitrust laws are likely to forbid the arrangement.”191 Nordoes the Court suggest that the parties might call into question the “workablesurrogate” for a determination of the patent’s weakness by showing that theunderlying patent infringement case was, in fact, strong. In other words, a

185. Id. at 2234 (“The [Eleventh] Circuit’s . . . underlying practical concern consists ofits fear that antitrust scrutiny of a reverse payment agreement would require the parties tolitigate the validity of the patent in order to demonstrate what would have happened to compe-tition in the absence of the settlement. Any such litigation will prove time consuming, com-plex, and expensive.”).

186. Id. at 2236.187. Id.188. Id. at 2236–37; cf. supra notes 169–171 and accompanying text, suggesting that

settlement of even a strong patent infringement case might be expected to include a reversepayment.

189. Actavis, 133 S. Ct. at 2237.190. See id. at 2236.191. Id. at 2237.


plaintiff’s willingness to share the rents from a patent with a defendant whochallenges validity and infringement is enough to permit a court to find anantitrust violation without further assessment of the merits of the patent in-fringement case.

Three dissenting justices (Roberts, Scalia, and Thomas) apparentlywould have punted the patent issues in the opposite direction, protecting thesettlement from antitrust liability on the assumption that it “did not exceedthe scope of the patent.”192 The dissenters explained that “[a] patent carvesout an exception to the applicability of antitrust laws. The correct approachshould therefore be to ask whether the settlement gives [the patent holder]monopoly power beyond what the patent already gave it.”193

Although the dissenters asserted that “the scope of the patent—i.e., therights conferred by the patent—forms the zone within which the patentholder may operate without facing antitrust liability,”194 they did not indicatehow antitrust courts should ascertain what the scope of the patent is, beyondnoting that it “should be determined by reference to patent law” rather thanantitrust law.195 In particular, they did not indicate that the Actavis caseshould be remanded for a determination of the scope of the patent at issueunder patent law. Instead, they simply assumed that the settlement agree-ment was within the scope of the patent, evidently based on a belief that themajority accepted that characterization.196 But both validity and infringementwere contested in the patent infringement action and remained unresolved atthe time of settlement, and no findings were made on these issues in theantitrust action. The dissent agreed with the majority that “we’re not quitecertain if the patent is actually valid, or if the competitor is infringing it.”197

Yet somehow this uncertainty as to validity and infringement did not castdoubt on the dissenters’ conviction that the settlement agreement was withinthe scope of the monopoly power conferred by the patent. On the other hand,the dissent warned that the majority’s approach will inevitably lead defend-ants to raise their patent rights as a defense in antitrust actions, casting doubton the majority’s assertion that it will not normally be necessary to litigatepatent validity to resolve the antitrust case.198 The dissent concluded by an-nouncing a preference to “keep things as they were.”199 Perhaps this is anendorsement of the Eleventh Circuit’s approach, in which settlement of apatent infringement action is immune from antitrust attack “absent sham liti-

192. Id. at 2239 (Roberts, J., dissenting).193. Id. at 2238.194. Id.195. Id. at 2240 (emphasis in original).196. The dissent states that “the Court . . . is willing to accept that Solvay’s actions did

not exceed the scope of its patent.” Id. (citation omitted).197. Id.198. See id. at 2244.199. Id. at 2247.


gation or fraud in obtaining the patent . . . so long as its anticompetitiveeffects fall within the scope of the exclusionary potential of the patent.”200

In sum, although they disagreed about which side should prevail andalthough there is considerable ambiguity in both opinions, both the majorityand the dissent in Actavis left considerable room for antitrust courts to con-tinue to punt on patent issues in reviewing settlement agreements.

C. Patent Punting Leads Antitrust Courts Astray

It is remarkable that across the wide range of views on reverse paymentsettlements expressed in the Circuit split, Actavis opinions, and FTC, no-body has made any effort to engage with the merits of the underlying patentinfringement actions. Even opinions that purport to protect only those settle-ments falling within the “scope of the patent” show no willingness to assesswhether, but for the reverse payment settlement, the patentee would actuallyhave obtained an injunction excluding the generic, or the generic would havebeen permitted to enter the market. In a particularly apt metaphor, the Elev-enth Circuit called merits review within the antitrust case “a turduckentask”201—a turducken being a chicken stuffed inside a duck stuffed inside aturkey. Everybody seems to agree that reviewing the merits is too much forthe courts to swallow—they disagree only over whether the default positionshould be antitrust immunity or liability.

While it is easy to understand the aversion of antitrust agencies andcourts to analyzing the merits of settled patent infringement actions, it is notclear how they can avoid that inquiry if the rights conferred by patents haveany relevance to antitrust analysis. Even if the Actavis decision makes bothpatent and antitrust policies “relevant in determining the ‘scope of the patentmonopoly’—and consequently antitrust law immunity—that is conferred bya patent,”202 analysis of the patent infringement case forms at least one partof the inquiry. And even under the Eleventh Circuit approach that the Ac-tavis dissent would have approved, in order to determine whether a settle-ment falls within the “exclusionary potential” of the patent, it would seemnecessary to at least interpret the patent and compare it to the product andthe scope of approval sought by the defendant. Yet neither opinion directsthe lower courts to undertake that analysis, instead inviting continued patentpunting through reliance on flawed proxies for consideration of the merits ofthe patent case.

1. Limited Signal Value of the Direction of Payment

The information communicated by the direction of payment in a settle-ment has limited value to a court making an antitrust determination. Though

200. Fed. Trade Comm’n v. Watson Pharm., Inc., 677 F.3d 1298, 1312 (11th Cir. 2012).201. Id. at 1315.202. Actavis, 133 S. Ct. at 2231.


the Actavis majority saw something unnatural and inherently suspect in re-verse payments, observing that the reverse payment “form of settlement isunusual,”203 other unusual features of litigation under the Hatch-WaxmanAct make reverse payments likely in this context, whether the plaintiff’scase is strong or weak.204 Although it is possible, as the Actavis majorityassumes, that a patent holder that agrees to make such a payment thinks ithas a weak case, it is also possible that the patent holder considers the patentso valuable that it is willing to pay a significant premium to avoid even asmall risk of invalidity.205

The Hatch-Waxman Act promotes resolution of infringement disputesprior to generic entry. Thus the statute provides for an automatic thirty-month stay of FDA approval of an ANDA with a paragraph IV certification,so long as the innovator files an infringement action within forty-fivedays.206 This provides an opportunity for the parties to litigate disputes aboutpatent validity and infringement before the generic product enters the mar-ket,207 and therefore before the innovator has incurred any compensabledamages. This is an important design feature that protects both parties. Ge-neric entry typically causes a sharp drop in the price of the product, withresulting revenue loss for the patent holder far in excess of revenue gains forthe generic. If infringement litigation had to await generic entry, the patentholder could quickly incur damages that exceed the generic’s ability to sat-isfy a judgment. For this reason, a generic may be reluctant to enter themarket prior to resolution of the infringement action even after the Hatch-Waxman stay expires and its ANDA becomes effective.

Indeed, the term “reverse payment” is something of a misnomer, falselyimplying that payment would ordinarily flow in the opposite direction. TheHatch-Waxman Act explicitly prohibits the courts from awarding damagesagainst a defendant who has merely filed an ANDA.208 At most, a prevailingplaintiff can get an injunction against entry of the generic product and anextension of the stay of FDA approval until the end of the patent term. Aprevailing defendant can, at most, get a judgment that the patent is invalid or

203. Id.; see also id. at 2233 (“In the traditional examples cited above, a party with aclaim (or counterclaim) for damages receives a sum equal to or less than the value of its claim.In reverse payment settlements, in contrast, a party with no claim for damages (something thatis usually true of a paragraph IV litigation defendant) walks away with money simply so it willstay away from the patentee’s market.”).

204. See, e.g., Michael A. Carrier, Unsettling Drug Patent Settlements: A Framework forPresumptive Illegality, 108 MICH. L. REV. 37, 51 (2009) (describing the increasing use ofreverse payment settlements under the Act).

205. See Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056, 1075; see also,supra, text accompanying notes 172–176.

206. 21 U.S.C. § 355(j)(5)(B)(iii) (2012).207. See Gregory Dolin, Reverse Settlements As Patent Invalidity Signals, 24 HARV. J. L.

& TECH. 281, 293–94 (2011).208. 35 U.S.C. § 271(e)(4)(C)(2012).


not infringed (and, if the defendant was the first to file an ANDA with aparagraph IV certification for the product, a six-month period of genericexclusivity before FDA will approve another ANDA with a paragraph IVcertification for the same product). The financial value of a win to the plain-tiff is much higher than the financial value of a win to the defendant.209 Dueto this disparity in the stakes of the parties, a transfer from the patent holderto the alleged infringer is likely a settlement that reflects a compromise oneach side.

To be sure, the underlying patent infringement action may well be weakon the merits. For reasons explained above,210 the combination of the Hatch-Waxman boost and FDA patent punting makes it advantageous for innova-tors to pursue weak ANDA infringement actions that they are unlikely towin on the merits. These weak cases may also lead to settlement agreementsthat call for payments from patent holders to asserted infringers. The Actavismajority was understandably concerned that settlements of weak patent in-fringement cases that would otherwise likely have been resolved in favor ofthe generic will leave consumers worse off than they would have been if theparties had pursued the litigation to final judgment.211 But the presence of areverse payment term is not a reliable indicator of a weak case, and theassertion that such a payment may serve as a “workable surrogate” for con-sideration of the merits of the infringement action suggests a misunderstand-ing of the peculiar context of infringement litigation prior to market entryunder the Hatch-Waxman Act.

Because the majority believed that a reverse payment is a reliable indi-cation of a weak case, it did not address the possibility that the patent holdermight otherwise have prevailed. But if the underlying lawsuit would other-wise have ended in an injunction against the generic, it is not clear howconsumers are worse off as a result of the settlement, even if the settlementincludes a reverse payment. What matters to consumers is not the directionof payment in the settlement, but the timing of generic entry that bringsprice-lowering competition.212

209. Indeed, even after the 30-month stay has lifted, the generic may be reluctant to enterthe market because the risk of liability would substantially exceed the profits the generic couldearn by selling a competing generic product over the same period. This is because prices forgenerics are substantially lower than the prices that an innovator can charge as the sole sourceof a patent-protected product. See Dolin, supra note 207, at 292 n.59; see also Crane, supranote 157, at 762–65.

210. See supra notes 206–208 and accompanying text.211. Fed. Trade Comm’n v. Actavis, Inc., 133 S. Ct. 2223, 2234–35 (2013).212. The analysis in text considers only the interest of consumers in price-lowering com-

petition, and not their interest in promoting innovation through the incentive of patent-pro-tected monopoly pricing. The latter interest is presumably better served by allowing theholders of valid patents to exclude competitors until the end of the patent term, and may beharmed by reverse payments that divert a portion of the patent rents away from innovators andtowards generics, thereby undermining the value of patent incentives.


By focusing antitrust scrutiny on the false indicator of reverse payments,the Court ignored the fact that equally or more anticompetitive patent settle-ments can be constructed with no reverse payment at all, as discussed next.

2. Easy Anticompetitive Work-Arounds

One justification that the Actavis majority identified as supporting thelegality of some reverse payments is that the “payment may reflect compen-sation for other services that the generic has promised to perform—such asdistributing the patented item or helping to develop a market for thatitem.”213 In one type of patent settlement case, the generic agrees to dis-tribute either the innovator’s drug or an “authorized generic” and receives apromise of payment for its services as part of the settlement. A second typeof case arises when a generic and innovator want to avoid the scrutiny trig-gered by a reverse payment altogether. In such a case, they reverse the ap-parent direction of payment by having the generic promise to pay thepatentee for the right to be a distributor.214 In the first model, the genericbecomes an agent selling on behalf of the innovator and receives compensa-tion for its efforts, while in the second the generic is a licensee that remitssome share of revenues to the innovator as a royalty.215 In that case, we haveboth the absence of a reverse payment and the fact of early generic entry,which should easily satisfy the Actavis rule of reason standard.

From the perspective of the consumer, however, such agreements maybe worse than the reverse payments at issue in Actavis.216 Suppose, for ex-ample, that prior to generic entry, the monopoly mark-up per unit is equal to$1. Now suppose that the innovator brings a patent infringement lawsuitwith a low probability of success. Prior to adjudication of that lawsuit, thepatent holder settles with the generic, making the generic its authorized ge-neric distributor until the end of the patent term. The generic agrees to remitto the patent holder a royalty of $1 per unit of sales. Unless the generic’smarginal costs of production or distribution are lower than those of the inno-vator, we now have (1) early generic entry, (2) no reverse payment, and (3) a

213. Actavis, 133 S. Ct. at 2236.214. See Crane, supra note 157, at 765.215. See id. In two post-Actavis decisions involving complex settlement structures, the

District of New Jersey dismissed the plaintiffs’ complaints, finding that the settlements did notinvolve “reverse payments” within the meaning of Actavis, even though they involved somecessation of competition between the innovator and the generic. In re Lipitor Antitrust Litig.,2014 WL 4543502 (No. 3:12–cv–02389 (PGS) D.N.J. Sept. 12, 2014); In re Effexor XR Anti-trust Litig., 2014 WL 4988410 (No. 11–5479 (PGS)(LHG) D.N.J. Oct. 6, 2014). In Lipitor, thegeneric agreed to settle Pfizer’s patent infringement challenge by agreeing to a later entry datein the U.S. market in exchange for Pfizer dropping other patent litigation for damages for atoken $1 million payment and allowing the generic to launch generic Lipitor in 11 foreignmarkets prior to the patent expiration date. In Effexor, Wyeth and Teva settled without cashpayment from Wyeth to Teva but with Wyeth’s promise not to market an authorized genericversion of Effexor during Teva’s 180-day exclusivity period.

216. See id. at 765–66.


continuation of the same monopoly pricing. Indeed, because the licensingagreement continues until the expiration of the patent, it may leave consum-ers paying monopoly prices for longer than some reverse payment settle-ments that permit generic entry before the expiration of the patent.

It is not necessary to set the royalty equal to the full monopoly over-charge in order to produce anticompetitive results relative to a judgment forthe generic. Suppose the royalty is set at 90 percent of the monopoly over-charge, leading to immediate price reductions. But since the first generic tomarket ordinarily sets its price around 70–80 percent of the brand,217 thissettlement deprives consumers of a much larger price decrease they mighthave received in the but-for world.

This example is not fanciful: FDA currently lists 673 authorized gener-ics on the market.218 As long as the agreements authorizing distribution ofthese products do not involve reverse payments, they will not show up oncourts’ post-Actavis radar screen. Antitrust lawyers are therefore likely topush clients toward settlements of this nature that avoid the red flag of re-verse payments. Circumvention of the reverse payment rule established inActavis is not difficult and need not diminish anticompetitive effects.

The direction in which payment flows in a settlement agreement is notwhat drives anticompetitive effects. What drives these effects is theprobability that but for the settlement, the generic and innovator would haveentered into price competition. There are ample means other than reversepayments to soften competition between branded and generic drug firms.Actavis does not merely ignore this possibility. By crediting licensing agree-ments as a robustly procompetitive defense, it compounds the error of thedecision by appearing to grant categorical immunity to other forms of an-ticompetitive agreement.

3. Limited Relevance of Anticompetitive Motivations

Some language in the Actavis majority opinion goes beyond treatingreverse payments as a signal of a weak patent case, suggesting that antitrust

217. See Richard E. Caves et al., Patent Expiration, Entry, and Competition in the U.S.Pharmaceutical Industry, in BROOKINGS PAPERS ON ECONOMIC ACTIVITY, MICROECONOMICS,1, 35 (Martin Neil Baily & Clifford Winston eds. 1991) (“[G]eneric drugs sell for a substantialdiscount from the price of the branded drug; the estimates suggest that with a single genericentrant, the generic price is roughly 60 percent of the branded drug price.”); David Reiffen &Michael R. Ward, Generic Drug Industry Dynamics, 87 REV. ECON. & STAT. 37, 44 (2005)(explaining that their study showed a single generic entrant would set its price at 88% of thebranded price); see also Caves et al., supra, at 44–45 (finding that generic producers depressthe branded drug’s price and “enter the market quoting prices much lower than those of theirbranded competitors”).

218. FDA Listing of Authorized Generics as of Jan 9, 2015, FOOD & DRUG ADMINISTRA-

TION, DEPARTMENT OF HEALTH AND HUMAN SERVICES (Jan. 9, 2015) http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/UCM183605.pdf.


liability is appropriate if the motivation for the agreement is to avoid the riskof generic competition by maintaining and sharing the rents from the patent,even if the risk of invalidity is small:

The owner of a particularly valuable patent might contend, ofcourse, that even a small risk of invalidity justifies a large payment.But, be that as it may, the payment (if otherwise unexplained) likelyseeks to prevent the risk of competition. And, as we have said, thatconsequence constitutes the relevant anticompetitive harm. . . . Al-though the parties may have reasons to prefer settlements that in-clude reverse payments, the relevant antitrust question is: What arethose reasons? If the basic reason [for a reverse payment] is a desireto maintain and to share patent-generated monopoly profits, then, inthe absence of some other justification, the antitrust laws are likelyto forbid the arrangement.219

It is not clear why the Court regarded the intent of the parties in enteringinto a reverse payment agreement as “the relevant antitrust question,” norwhy an intent to maintain and to share patent-generated profits would indi-cate an antitrust violation. Incentives to recover patent-generated monopolyprofits are a feature, not a bug, in the patent system, serving to motivate andreward innovators for making new inventions. Patents can only serve thispurpose if their owners affirmatively seek such profits, and the maintenanceof monopoly profits often requires asserting patent rights against infringersin litigation. If the point of patents is to motivate innovation in pursuit ofmonopoly profits, it makes little sense to hold that patent holders run afoulof the antitrust laws when the same motivation leads them to settle meritori-ous infringement actions rather than take a small risk of losing. Moreover, itis hard to see how a wish to maintain monopoly profits can distinguishplaintiffs with weak claims from those with strong claims. A wish to main-tain profits is ubiquitous in litigation over valuable patents.

What matters to consumers is not the anticompetitive intent of the par-ties in entering into the agreement, but the anticompetitive effects of such anagreement. The presence of a reverse payment in the agreement may indi-cate that the patent holder is concerned about the possibility of an adversejudgment, but such concern is to be expected from a risk-averse holder of avaluable patent and does not necessarily indicate that the plaintiff is other-wise likely to lose. The terms of the settlement may reveal something aboutthe parties’ assessment of litigation risks, but they are a very noisy signal,hardly a substitute for direct consideration of the merits.

In focusing on the subjective motivation for the settlement, the Actavismajority seemed to suggest that any motivation by the patent holder to elimi-

219. Fed. Trade Comm’n v. Actavis, Inc., 133 S. Ct. 2223, 2236–37 (2013).


nate litigation risks is inherently anticompetitive.220 This strange assumptionis at odds with the ordinary operation of the rule of reason. The motivationto suppress competition is present in many business arrangements that easilysatisfy the rule of reason.221 Moreover, the motivation for litigation settle-ments typically includes a wish to insure against the possibility of an adverseoutcome, and in the case of patent settlements, an adverse outcome for thepatentee typically means more competition. Yet the Actavis majority sug-gested that such a motivation likely renders the settlement anticompetitive,at least in the absence of some other justification.

Perhaps this approach leaves room for future courts to recognize that thepro-competitive benefits of a settlement outweigh the risk that a settlementwill defer price-lowering competition. It is well-documented that these bene-fits are not limited to the elimination of direct litigation costs, as the majorityacknowledged.222 Indirect litigation costs often exceed attorneys’ and expertwitness fees.223 Early elimination of uncertainty around generic entry canallow for better planning by both innovators and generics, as well as inven-tion around the patent.224 The settlement option increases the generic’s flexi-bility in challenging the innovator’s patent and hence decreases the costs ofgeneric challenges.225 Many settlements allow for generic entry years beforethe expiration of the patent, a possibility that would be eliminated by theinnovator’s victory in the patent litigation.226 In ordinary rule of reason anal-ysis, one would analyze and weigh these factors against the possibility ofearlier generic entry in the absence of settlement as a result of a judgment infavor of the generic. But if antitrust courts and agencies continue to punt ondetermining the likely outcome of the litigation, it is unclear how they canproperly assess these possibilities to determine the net anticompetitive ef-fects of settlements. There is no substitute for direct engagement with the

220. Actavis, 133 S.Ct. at 2234.221. See Crane, supra note 157, at 778 (“A patentee’s intentions are virtually always

explicitly ‘anticompetitive’ in the precise sense in which antitrust lawyers mean those words—the patentee wishes to suppress the competition for its patented good in order to preserve astream of monopoly rents from that good.”).

222. Actavis, 133 S. Ct. at 2236.223. See Crane, supra note 157, at 757–59.224. Id. at 762–65.225. In re Ciprofloxacin Hydrochloride Antitrust Litig., 261 F. Supp. 2d 188, 256

(E.D.N.Y. 2003) (citing expert declaration of Dr. Jerry Hausman for the proposition that “[t]omaximize these incentives [for generics to challenge branded patents], a generic companyshould be permitted to choose not only when to commence patent litigation, but also when toterminate it”).

226. See Michael A. Carrier, Provigil: A Case Study of Anticompetitive Behavior, 3HAST. SCI. & TECH. L.J. 441, 442–44 (2011) (discussing early entry provisions in agreementsbetween pioneer and generic companies regarding the medication Provigil, wherein the genericcompanies agreed in 2006 to delay market entry until 2012, when the patents were set toexpire in 2015).


strength of the patent infringement claim, including both validity and in-fringement issues.

Like the patent punting strategies deployed by FDA, the patent puntingstrategies deployed by the antitrust courts threaten to upset the balance stuckin the Hatch-Waxman Act. This balance both protects innovators from in-fringing generic competition and encourages generics to compete, as long asthey do not infringe any valid patents. The FDA strategy of deference toinnovators errs on one side of the balance, while the Actavis strategy ofpresuming anticompetitive effects for reverse payment settlements errs onthe other side. FDA’s patent punting strategy leads to too much infringementlitigation, including weak cases, while the Actavis patent punting strategymakes it more difficult to settle that litigation, including strong cases. TheHatch-Waxman Act is a complex compromise between the interests of inno-vators and generics, leaving room for patent punters to find support for theirmoves in those provisions that favor one side or the other.227 But the netresult has been unnecessary costs, delays, and harm to consumers.

Antitrust courts would do a better job of determining which settlementsharmed consumers if they were willing to examine the merits of the settledinfringement actions rather than relying on misleading proxies such as re-verse payments and inferences about intent to avoid litigation risks. But thebest antitrust courts can do is award damages long after consumers havesuffered the consequences of improper delays in generic entry. Under themisleading guidance of Actavis, a more likely outcome is that patent litigantswill change the way they write their settlement agreements to avoid raisingred flags (such as reverse payments), while using equivalent provisions totake advantage of the inability of patent-punting courts to tell which settle-ments have actually harmed consumers.

IV. RECONSIDERING THE RESPECTIVE ROLES OF

FDA AND THE COURTS

FDA is in a much better position than antitrust courts to minimize harmto consumers. Through timely regulatory oversight of which patents get theHatch-Waxman boost, FDA could limit the attractiveness to patent holdersof pursuing weak infringement actions, and thus limit the opportunities fordeferring generic entry through anticompetitive settlements.

FDA oversight has significant advantages over litigation in minimizingabuses of the Hatch-Waxman scheme. First, FDA is in a position to detectabuses at a much earlier stage than the courts, and thus to minimize im-proper delays in generic entry. Litigation, at best, leads to deferred decisionson the merits, and may instead lead to collusive settlements of weak claimsthat could have been avoided through active administrative oversight at anearlier stage. Second, FDA is better able than the courts to make certain

227. Actavis, 133 S. Ct. at 2234; 1989 Proposal, supra note 54, § V.Q.3, at 28,909.


statutory determinations that play a central role in the Hatch-Waxmanscheme. More specifically, FDA’s technological and regulatory expertisegive it an advantage over the courts in examining the relationship betweenpatent claims and the scope of regulatory approval under NDAs and ANDAsto determine which patents are entitled to the Hatch-Waxman boost. Prioradministrative review would not displace litigation but could determinewhether a patent is entitled to cause an automatic thirty-month stay of ap-proval of an ANDA. It could exclude from the Orange Book those patentsthat could not reasonably be asserted against an ANDA and give courts thebenefit of FDA’s assessment of the relationship between patents and FDAapproval documents. We consider each of these advantages below. We thenconsider how best to address FDA’s reluctance to take on a larger role inadministrative oversight of patent matters.

A. Timing

The Hatch-Waxman Act reflects a clear plan for the timing of genericentry. It replaced a system in which the costs of regulatory approval main-tained a de facto entry barrier that excluded generics long after patent expi-ration with a new set of rules that lowered regulatory entry barriers toaccelerate generic entry once relevant patents had expired. After an initialfive-year period of regulatory exclusivity, a generic may be approved atlower cost by using an ANDA rather than a more costly NDA. But the tim-ing of ANDA approvals also depends on the duration of patents that meetcertain statutory criteria. The effect is to exclude generics during the term ofthe specified patents if they are valid and would be infringed by the ANDAproduct, while allowing ANDA approvals to take effect immediatelythereafter.

Many features of the Hatch-Waxman Act reveal a clear goal of permit-ting generic entry as soon as possible once previously approved products anduses are no longer covered by any valid patents that meet the statutory crite-ria. One important change under the Hatch-Waxman Act was to modify thedefinition of patent infringement to allow for the completion of all prerequi-sites to regulatory approval during the patent term. Overturning a judicialdecision that held the use of a patented drug in clinical trials to be an act ofinfringement,228 Congress created a new statutory infringement exemptionfor acts “solely for uses reasonably related to the development and submis-sion of information under a Federal law which regulates the manufacture,use, or sale of drugs.”229 This change paved the way for prompt generic entryby making it possible to carry out any necessary clinical trials during thepatent term. The Hatch-Waxman Act also explicitly provides for the submis-sion of ANDAs during the patent term that would become effective on the

228. Roche Prods., Inc. v. Bolar Pharm. Co., 733 F.2d 858, 861 (Fed. Cir. 1984).229. 35 U.S.C. § 271(e)(1) (2012).


patent expiration date.230 This eliminated the previous de facto extension inthe duration of market exclusivity beyond the term of the patent to cover thetime necessary to test products and gain regulatory approval.

Other statutory provisions show an effort to minimize delays in genericentry as a result of patents that are invalid or not infringed and to accelerateany infringement litigation. For example, the Hatch-Waxman Act ordinarilyprovides innovators with a five-year period of regulatory exclusivity beforea competitor may submit an ANDA, but it permits submission as much asone year earlier if the ANDA includes a paragraph IV certification challeng-ing patent validity or infringement.231 The Hatch-Waxman Act further en-courages prompt patent challenges by rewarding the first generic to submitan ANDA with a paragraph IV certification with 180 days of generic exclu-sivity before FDA may approve another ANDA with a paragraph IV certifi-cation for the same product.232 The statute accelerates litigation by requiringthe challenger to provide notice of the basis for the patent challenge withintwenty days.233 It further encourages patent holders to assert any infringe-ment claims promptly by providing that unless the patent holder responds byfiling an infringement action within forty-five days, approval of the ANDAshall be made effective immediately.234 To ensure the dispute is ripe for judi-cial resolution, Congress modified the definition of infringement to includesubmitting an ANDA “for a drug claimed in a patent or the use of which isclaimed in a patent.”235 The statute mandates that “each of the parties shallreasonably cooperate in expediting the action,” and authorizes the court toadjust the duration of the thirty-month stay if either party fails to do so.236

Even the thirty-month stay, although it defers generic entry temporarily, setsa limit on how long patent litigation may delay regulatory approval ofANDAs. Litigation may continue thereafter, but prolonged litigation cannotdefer regulatory approval beyond the stay period without a court order tothat effect.237

Finally, Congress set limits on the kinds of patents that are relevant tothe timing of ANDA approval.238 The statute requires that innovators iden-tify in their NDAs:

any patent which claims the drug for which the applicant submittedthe application or which claims a method of using such drug andwith respect to which a claim of patent infringement could reasona-

230. 21 U.S.C. §§ 355(j)(2)(B)(vii)(III), 355(j)(5)(B)(ii) (2012).231. Id. § 355(j)(5)(F)(ii).232. Id. § 355(j)(5)(B)(iv).233. Id. § 355(j)(2)(B).234. Id. at § 355(j)(5)(B)(iii).235. 35 U.S.C. § 271(e)(2) (2012).236. 21 U.S.C. § 355(j)(5)(B)(iii).237. 35 U.S.C. § 271(e)(4)(A); 21 U.S.C. § 355(j)(5)(B)(iii).238. See supra text accompanying notes 66–68.


bly be asserted if a person not licensed by the owner engaged in themanufacture use, or sale of the drug.239

In parallel language, the statute requires that ANDAs include a certifica-tion “with respect to each patent which claims the listed drug . . . or whichclaims a use for such listed drug for which the applicant is seeking ap-proval.”240 Other patents that might be infringed by a generic, such as pat-ents on other methods of use or on manufacturing methods, may not be usedto delay the submission or approval of an ANDA, although they might stillbe asserted in an infringement action. Moreover, the Hatch-Waxman Actdoes not require that an ANDA include a certification for a method of usepatent that does not claim a use for which the ANDA seeks approval, insteadpermitting a statement “that the method of use patent does not claim such ause.”241 By limiting the kinds of patents that will automatically defer the useof ANDAs, Congress limited regulatory delays on generic entry without dis-turbing patent infringement remedies.

These provisions recognize that time is of the essence in determiningwhen generic competition may begin. The Hatch-Waxman Act provides anopportunity for litigating disputes about patent validity and infringement andfor a temporary stay of regulatory approval during litigation, but it also ac-celerates the time frame for litigation and sets statutory limits on the kinds ofpatents that can delay regulatory approval of ANDAs. It gave FDA a signifi-cant role in administering these patent provisions, although FDA has soughtto minimize that role. When innovators submit patent information as part oftheir NDAs, they submit that information to FDA.242 It is FDA that the stat-ute directs to publish the information.243 And when generics address thesepatents in their ANDAs, whether through a section vii certification or a sec-tion viii statement, the submission goes directly to FDA.

FDA thus stands at the front door of the Hatch-Waxman patent provi-sions. It is the first to learn which patents innovators believe are relevant totheir NDAs, and the first to learn how generics plan to address those patentsin their ANDAs. This position gives FDA—and only FDA—a timely oppor-tunity to determine whether particular patents are properly disclosed as partof a particular NDA, and whether they are properly addressed through asection vii certification or a section viii statement in a particular ANDA.These determinations are critical in determining when FDA approval ofANDAs may become effective. Yet because it would have to read patents inorder to make these determinations, FDA refuses to take administrative re-sponsibility and insists that this must be a job for the courts.

239. 21 U.S.C. § 355(b)(1).240. Id. § 355(j)(2)(A)(vii).241. Id. § 355(j)(2)(A)(viii).242. See id. §§ 355(b)(1), 355(c)(2).243. Id.


To justify its preferred course of patent punting, FDA has ignored themanifest legislative purpose to resolve disputes in a timely fashion, whilegiving a very broad reading to the Hatch-Waxman litigation provisions. Be-cause Congress provided for litigation in the district courts of certain dis-putes about patent validity and infringement, FDA has concluded that it isexempt from any obligation of administrative oversight of the Hatch-Wax-man patent provisions in individual cases. The result has been a failure ofeffective enforcement of the statutory limitations on which patents can deferregulatory approval of ANDAs.

In the absence of administrative oversight, innovators can decide whichof their patents qualifies for a thirty-month stay of regulatory approval. The2003 statutory provision for counterclaims to correct improper patent listingsdoes not undo the delays these listings cause. By the time a counterclaim isfiled, the improper listing (or improper use code) has already compelled thegeneric to take steps that it might otherwise have avoided, including submit-ting a paragraph IV certification for the patent and giving notice to the patentholder, thus triggering an infringement action and thirty-month stay ofANDA approval. Much of that stay is likely to have run its course before thecourt can grant the only remedy that the statute permits: an order requiringthe NDA holder to correct or delete the previously submitted patent informa-tion.244 A court cannot turn back the clock and allow the ANDA to becomeeffective at an earlier point. Even if the patent holder loses on the counter-claim, it will likely have recovered much of the value of the Hatch-Waxmanboost, and consumers will have paid the price. FDA’s insistence on puntingall patent issues to the courts thus frustrates Congress’ efforts to replace defacto regulatory entry barriers with a more deliberate and carefully timedapproach with statutory rules about which patents can defer generic entry.Only FDA is in a position to take timely steps to prevent irrelevant patentsfrom deferring its own ANDA approvals.

B. Expertise

Another significant advantage of FDA in determining which patentsshould defer ANDA approval arises from its expertise as a regulatory agencycharged with overseeing approvals of NDAs and ANDAs. This expertise isparticularly important to determinations of which patents are appropriate forlisting in the Orange Book and which patents may be addressed in a sectionviii statement rather than a section vii certification. These determinations are

244. Indeed, it is not clear whether the district court could even direct FDA to terminatethe 30-month stay without first determining that the patent is invalid or not infringed. See KurtA. Karst, Does a Hatch-Waxman Patent Delisting Counterclaim Terminate a 30-Month Litiga-tion Stay?, FDA L. BLOG (Nov. 8, 2012, 6:58 PM), http://www.fdalawblog.net/fda_law_blog_hyman_phelps/2012/11/does-a-hatch-waxman-patent-delisting-counterclaim-terminate-a-30-month-litigation-stay.html.


unique to the Hatch-Waxman Act, and require understanding the meaning ofNDAs and ANDAs.

The Hatch-Waxman Act limits the patents that innovators are requiredto disclose to those that claim the drug or a method of using the drug “withrespect to which a claim of patent infringement could reasonably be assertedif a person not licensed by the owner engaged in the manufacture, use, orsale of the drug.” FDA has engaged in rulemaking to interpret these provi-sions.245 Partly in response to the recommendations of FTC, FDA has speci-fied in detail what kinds of patents are appropriate for listing, addressingpatents on polymorphs, intermediates, metabolites, and formulations. FDAhas further clarified that whether a patent is appropriate for listing dependsupon its relationship to the scope of approval in an approved or pendingNDA.246 Only those patents that claim either a drug or a method of using thedrug that is the subject of a pending or approved NDA (or an amendment orsupplement to an NDA) may be submitted for listing.247 Application of thisrule thus requires a comparison between patent claims and the scope of ap-proval sought or approved in the NDA. FDA, of course, is the agency thatreviews NDAs and has considerable expertise in understanding what theymean.

Similarly, FDA has an expertise advantage over the courts in determin-ing whether an ANDA should address a particular method of use patentthrough a section vii certification or a section viii statement. The statuterequires that an ANDA include a section vii certification “with respect toeach patent which claims the listed drug . . . or which claims a use for suchlisted drug for which the applicant is seeking approval.”248 Conversely, inthe case of “. . . a method of use patent which does not claim a use for whichthe applicant is seeking approval under this section,” the applicant need notsubmit a section vii certification. Instead, the statute requires that the ANDAinclude “a [section viii] statement that the method of use patent does notclaim such a use.”249 FDA regulations confirm that the certification and no-tice requirements do not apply “to a use patent that claims no uses for whichthe applicant is seeking approval.”250 The choice between a section vii certi-fication (such as a Paragraph IV certification that the patent is invalid or notinfringed)251 and a section viii statement (that the patent is a method of usepatent that does not claim a use for which the applicant is seeking approval)thus requires a comparison of the patent claims to the scope of approvalsought in the ANDA. FDA, as the agency charged with reviewing ANDAs

245. See supra Part II.246. See 21 C.F.R. § 314.53(b) (2014).247. Id.248. 21 U.S.C. § 355(j)(2)(A)(vii) (2012).249. Id. § 355(j)(2)(A)(viii).250. 21 C.F.R. §§ 314.95(a)(3), 314.94(a)(12)(iii)(A).251. 21 U.S.C. § 355(j)(2)(A)(vii)(IV).


and determining the appropriate scope of approval, has a clear expertise ad-vantage over the courts in understanding what methods of use are coveredby an ANDA.

Resolution of these issues in Caraco v. Novo Nordisk forced the courtson an unguided march through the weeds of FDA administrative practicewithout the benefit of the views of the agency responsible for creating theuse code system as to how its regulations applied to the facts of that particu-lar case.252 The patent claims in Caraco were not ambiguous, althoughNovo-Nordisk’s misleading use code created an illusion of uncertainty aboutwhich uses they covered.253 The regulatory artifact of use codes, devised byFDA to avoid having to read patents, provided an opportunity to distortclaim coverage and mislead FDA. The real dispute was not about the mean-ing of the claims, but about whether the use code narrative accurately tracksthe claims and their relationship to approved uses. FDA surely understooduse codes and their relationship to approved uses better than the courts.254 Bypunting the entire matter to the courts, FDA thus required a less expert reso-lution of issues that it could have resolved more authoritatively, and cer-tainly more quickly and cheaply, on its own.

The scope of approval sought in an ANDA is not only relevant to thechoice between a section vii certification and a section viii statement. It isalso central to the ability of the courts to grant relief prior to market entryunder the Hatch-Waxman Act, which provides for early litigation of an in-fringement claim against a firm that submits an ANDA “for a drug claimedin a patent or the use of which is claimed in a patent.” Resolution of theselawsuits requires not only determining what the patents claim, but also whatthe ANDAs seek approval for. Although sometimes the scope of approval isundisputed,255 when the scope is contested, judicial decisions reveal consid-erable confusion about how to make sense of these documents. For example,in Bayer Schering v. Lupin,256 a divided Federal Circuit panel affirmed dis-

252. See supra notes 121–142 and accompanying text.253. On remand, the Federal Circuit noted that although FDA had found that Novo

Nordisk’s revised use code for the ‘358 patent covered all three approved uses of repaglinide,it was undisputed that the patent claim at issue covered only one of those uses. Novo NordiskA/S v. Caraco Pharm. Labs., 688 F.3d 766, 768–69 (Fed. Cir. 2013) (“[I]n light of the admit-ted facts in this case, . . . the Supreme Court decision forecloses any argument that Novo’s usecode is ‘correct.’ . . . The Food and Drug Administration (‘FDA’) has found Novo’s currentuse code covers all three FDA-approved methods of using repaglinide. It is undisputed that[the ‘358 patent] claims only one of those three approved methods of use.”)(internal citationsomitted).

254. Indeed, the Federal Circuit deferred to FDA on this issue in Caraco. Id. at 768.255. E.g., Astrazeneca Pharm. LP v. Apotex Corp., 669 F.3d 1370 (Fed. Cir. 2012) (af-

firming dismissal of infringement action against ANDA applicants who had used section viiistatements for asserted patents that claimed methods of use for which they did not seek ap-proval in their ANDAs on the ground that the complaints failed to state a claim under 35U.S.C. § 271(e)(2)).

256. 676 F.3d 1316 (Fed. Cir. 2012).


missal of infringement actions against ANDA applicants who sought ap-proval to market generic versions of the drug Yasmin “for oralcontraception,” when the asserted patents claimed a method of using thedrug for achieving simultaneously “a contraceptive effect, an anti-andro-genic effect, and an anti-aldosterone effect.”257 Two panel members rejectedthe argument that FDA had in fact approved use of the drug to achieve thecombination of these three effects, but the third panel member dissented onthe basis of a different interpretation of the scope of FDA approval.258 Thedisagreement was over the significance of a highly technical disclosure inthe “Pharmacodynamics” subsection of the “Clinical Pharmacology” sectionof the FDA-approved label that one of the two active ingredients exhibitsanti-mineralocorticoid activity and that animal studies suggest it may haveanti-androgenic activity. The panel majority, after reviewing FDA regula-tions, concluded that this was a disclosure of side effects that did not indi-cate FDA approval of the use of the drug to achieve these effects, but thedissenting panel member disagreed, citing expert testimony of a former FDAemployee and a physician as to how they understood the label.259 The onlycontested issue was the scope of FDA approval, not the scope of the patent.Surely it would have been helpful for the courts to have the benefit of FDA’sown interpretation of what methods of use were covered by the approvaldocuments.260 Yet because FDA would have had to read the patent claims todetermine their relationship to the scope of approval, the entire matter wentdirectly to litigation without prior administrative review.

Even on issues of claim interpretation, FDA has significant technologi-cal expertise. Patent claims are directed to those who are skilled in the fieldof the invention; if they fail to inform such persons with reasonable certaintyabout the scope of the invention, the claims are invalid for lack of definite-ness.261 FDA, as the agency charged with regulating new drug development,surely is closer to the perspective of those skilled in the drug developmentfield than generalist trial courts. At a minimum, a trial court charged withinterpreting the language of a claim to a drug or method of use might benefitfrom knowing how FDA understood the claim.

257. Id. at 1319–20.258. Id. at 1322; id. at 1326, 1328–29 (Newman, J., dissenting).259. Id. at 1326, 1328–29 (Newman, J., dissenting).260. See also Braintree Labs. Inc. v. Novel Labs. Inc., 749 F.3d 1349 (Fed. Cir. 2014)

and id. at 1360–65 (Dyk, J., dissenting) (disagreement between panel majority and dissent overwhether dosage specified in ANDA meets particular claim limitation rather than over claiminterpretation).

261. 35 U.S.C. § 112(b) (2012) (“The specification shall conclude with one or moreclaims particularly pointing out and distinctly claiming the subject matter which the inventoror a joint inventor regards as the invention.”); see Nautilus, Inc. v. Biosig Instruments, Inc.,134 S. Ct. 2120 (2014) (rejecting the Federal Circuit’s interpretation that only “insolubly am-biguous” claims are invalid for lack of definiteness in favor of a “reasonable certainty”standard).


Claim interpretation is often contested in litigation, and the courts havedeveloped elaborate procedures for resolving disputes over the meaning ofclaims that FDA cannot and should not attempt to duplicate. When themeaning of a claim can be determined solely on the basis of the patent andits prosecution history,262 claim interpretation presents a pure question oflaw, subject to plenary review on appeal.263 But sometimes it is necessary toconsider additional extrinsic evidence such as expert testimony concerningthe meaning of terms of art to a person of ordinary skill in the art in therelevant time period, and District Courts need to make subsidiary factualdeterminations on these matters that are entitled to deferential review onappeal.264 Under current practice, district courts rule on disputed issues ofclaim interpretation following a proceeding known as a Markman hearingthat may include expert testimony and dictionary definitions of claim termsas well as evidence from the patent’s prosecution history. Reversals on ap-peal are common, and many observers believe that the process has failed toproduce certainty and predictability as to the meaning of claim language.265

But in some cases that perplex the courts, claim interpretation might poselittle difficulty for an impartial reader who has ordinary skill in the field.

Moreover, it may not be necessary to resolve every ambiguity in a claimthat includes limitations that make it clear that an ANDA does not in-fringe.266 Consider the recent case of Braintree Laboratories v. Novel Labo-ratories.267 In that case, a divided Federal Circuit panel reversed, vacated,and remanded a summary judgment of infringement against an ANDA for ageneric version of a bowel prep kit for use prior to colonoscopy. Claim 15 ofthe patent at issue recites:

262. The prosecution history of a patent is the PTO’s complete record of the applicationprocess for a patent, including the original application itself, responses made by the examiner,and any amendments made by the applicant. See Festo Corp. v. Shoketsu Kinzoku Kabushiki,535 U.S. 722 (2002).

263. Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454–55 (Fed. Cir. 1998) (enbanc); Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015).

264. Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015).265. There is an extensive literature on the topic. See, e.g., Dan L. Burk & Mark A.

Lemley, Fence Posts or Sign Posts: Rethinking Patent Claim Construction, 157 U. PENN. L.REV. 1743 (2009); Peter S. Menell, et al., Patent Claim Construction: A Modern Synthesis andStructured Framework, 25 BERKELEY TECH. L.J. 711 (2010); David L. Schwartz, PracticeMakes Perfect? An Empirical Study of Claim Construction Reversal Rates in Patent Cases,107 MICH. L. REV. 223 (2008).

266. In order to infringe a patent claim, a defendant’s product or process must meet everyelement of the patent, either literally or by equivalence, and thus each element limits the scopeof the claim. Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 41 (1997); BayerAG v. Elan Pharm. Research Corp., 212 F.3d 1241, 1247 (Fed. Cir. 2000). If the defendant’sproduct or process fails to meet any one limitation of the claim, there is no infringement, andtherefore no need to consider whether additional claim elements are present. Fin Control Sys.Pty, Ltd. v. OAM, Inc., 265 F.3d 1311, 1320 (Fed. Cir. 2001).

267. 749 F.3d 1349 (Fed. Cir. 2014).


A composition for inducing purgation of the colon of a patient, thecomposition comprising from about 100 mL to about 500 mL of anaqueous hypertonic solution comprising an effective amount ofNa2SO4, an effective amount of MgSO4, and an effective amount ofK2SO4, wherein the composition does not produce any clinicallysignificant electrolyte shifts and does not include phosphate.268

Each member of the three judge panel wrote separately, primarily aboutthe interpretation of the claim terms “purgation,” “a patient,” and “clinicallysignificant electrolyte shifts.” One panel member, Judge Dyk, would haveheld that the meaning of these claim terms was beside the point because theANDA product would not infringe the dosage limitation set forth in theclaim.269 The claims called for 100–-500 mL of the composition, while theANDA sought approval for a dose of two sixteen-ounce bottles, or a total of946 mL.270 The district court rejected this argument, reasoning that each sin-gle bottle satisfied the volume limitation and a single bottle was sufficient toachieve “purgation” as the court interpreted that term in the claim,271 butFDA had not approved administering a single bottle dose of the product, andthe ANDA did not and could not seek approval for an infringing dose. Thecourts might have understood the issue better with the benefit of FDA’sexpertise in comparing an unambiguous dosage term in the patent claim tothe scope of approval sought in the ANDA.

In its scrupulous avoidance of engagement with any issues of patentlaw, FDA is thus leaving the courts to resolve disputes concerning the scopeof FDA approval—issues that are squarely within the scope of FDA’s exper-tise—without giving them the benefit of FDA’s analysis of those issues. Itmay take a long time for the courts to sort it out, and they may get it wrong.Meanwhile, regardless of the merits, plaintiffs benefit from the protection ofa thirty-month stay without having to persuade a court to enter a preliminaryinjunction.

C. Relationship of Administrative Determinations toLitigation Over Validity and Infringement

Proper administration of the Hatch-Waxman Act requires timely and im-partial determinations of which patents are entitled to the Hatch-Waxmanboost. Deference to innovators fails the test of impartiality. Experience hasshown that in the absence of administrative oversight, innovators will submit

268. Id. at 1353.269. Id. at 1360, 1361–63 (Dyk, J., concurring in part, dissenting in part, and concurring

in the result).270. Id. at 1362.271. Braintree Labs., Inc. v. Novel Labs., Inc., No. 11-1341 (PGS), 2013 U.S. Dist.

LEXIS 7698, at *26–28, 2013 WL 211252, at *10–11 (D.N.J. Jan. 18, 2013), vacated, 749F.3d 1349 (Fed. Cir. 2014).


patents that do not meet the statutory criteria for disclosure and could notreasonably be asserted against ANDA applicants in order to use the Hatch-Waxman boost to defer generic entry.272 Resort to counterclaims in infringe-ment actions to correct improper patent listings fails the test of timeliness.The courts cannot determine which patents should get the Hatch-Waxmanboost in a time frame that avoids the cascade of regulatory consequencestriggered by listing a patent in the Orange Book and cannot undo the delayscaused by allowing the patents to be improperly listed in the first place.Other patents come with remedies under the Patent Act, but they are notentitled to the Hatch-Waxman boost. Only FDA is in a position to tell thedifference in a timely fashion. Moreover, punting these disputes to the courtswithout prior administrative oversight deprives the courts of the benefit ofFDA’s expertise in understanding the scope of approval in an NDA or anANDA.

Application of the statutory standards does not require FDA to considerchallenges to the validity of a patent, nor does it require a full analysis ofinfringement. But it does require that FDA read patents at two distinctpoints. First, when an innovator submits a patent for listing, FDA must de-termine whether the patent claims an approved drug or an approved methodof use and “could reasonably be asserted” against an unauthorized generic.Those drug patents and method of use patents that survive the “reasonableassertion” test may be listed in the Orange Book; those that fail the test arenot entitled to the Hatch-Waxman boost. Second, if there is a dispute aboutwhether an ANDA may use a section viii statement for a method of usepatent, FDA must determine whether the ANDA seeks approval for anymethods of use claimed in a listed patent. If FDA concludes that the ANDAdoes not seek approval for a patented method of use, the patent holder is notentitled to a thirty-month stay, and the generic may not claim regulatoryexclusivity unless the ANDA also includes a paragraph IV certification (per-haps for another patent or claim).

Each of these determinations requires comparing the patent claims to thescope of approval under the NDA or ANDA. If the patent holder sues thegeneric for patent infringement for filing the ANDA, the court will againneed to compare the patent claims to the ANDA to rule on infringement.273

But FDA administrative determinations of the relationship between patentclaims and the scope of approval are by no means redundant to the work tobe done by the courts in cases that proceed to litigation.

First, administrative determinations of which patents are entitled to theHatch-Waxman boost will come much earlier and at considerably lower

272. See supra Part II.273. 35 U.S.C. § 271(e)(2) (2012). See Astrazeneca Pharm. LP v. Apotex Corp., 669

F.3d 1370, 1377–78 (Fed. Cir. 2012) (“[I]nfringement of method claims under § 271(e)(2)requires filing an ANDA wherein at least one ‘use’ listed in the ANDA is claimed in apatent.”).


cost. They will neither displace litigation nor determine its outcome. Theywill, however, determine whether the patent holder may get an automaticstay of ANDA approval without a court order.

Second, the issues to be resolved by FDA and the courts are not identi-cal, although they overlap somewhat. FDA will not consider challenges topatent validity.274 Administrative and judicial determinations will overlapmore if there is a dispute about infringement. FDA must determine whethera patent meets the statutory criteria for listing in the Orange Book, includingwhether it covers an approved drug or method of use and whether it “couldreasonably be asserted” against unauthorized manufacture, use, or sale of thedrug. Because ANDAs seek approval only for previously approved productsand previously approved uses, a patent that meets these criteria may well beinfringed by the ANDA, unless the ANDA uses a section viii statement tocarve out a patented method of use. But while FDA need only determinewhether assertion of the patent would be reasonable, in cases that proceed tolitigation the court must go further and decide whether the ANDA product(or its use) would infringe the patent. The “reasonable assertion” standard isa coarser filter that need not exclude every patent that a court might ulti-mately decide would not be infringed by the generic. FDA need not engagein the same thorough claim interpretation and infringement analysis requiredof district courts. But it must do more than simply defer to the patent holderto determine whether its assertions are reasonable.

Third, administrative oversight is particularly important for cases thatnever reach a judicial determination on the merits. Even if the patent holder

274. The PTO is in a better position than FDA to provide administrative review of patentvalidity and has new statutory authority to perform that function in a timely and cost-effectiveway under the Leahy-Smith America Invents Act of 2011, supra note 18. For the first ninemonths after a patent is issued, any person other than the owner may petition the PTO toinstitute a post-grant review (PGR) of the patent seeking to cancel one or more claims forinvalidity on any basis that could be raised in an infringement action. 35 U.S.C. §§ 321–329.After the nine-month window for initiating PGR is closed, it is still possible to challenge thepatent by filing a petition for inter partes review (IPR), 35 U.S.C. §§ 311–319, but only on thebasis of prior art consisting of patents or printed publications, 35 U.S.C. § 311, and only if thePTO determines that there is a reasonable likelihood that the petitioner would prevail withrespect to at least one of the challenged claims, 35 U.S.C. § 314(a). Initial experience suggeststhat IPR is a powerful tool for challenging invalid patents while avoiding litigation costs. SeeBrian J. Love & Shawn Ambwani, Inter Partes Review: An Early Look at the Numbers, 81 U.CHI. L. REV. 93 (2014) (finding that when a petition was filed the PTO instituted IPR 84% ofthe time, that in cases that had reached a final decision all claims had been invalidated ordisclaimed more than 77% of the time, and that litigation proceeding in parallel had beenstayed 82% of the time). Although so far only a small number of IPRs have involved chal-lenges to drug patents, the availability of this new tool for challenging patent validity before anexpert agency weakens the case for assigning a similar job to FDA. For analysis of the advan-tages of IPR in the context of Hatch-Waxman disputes, see Gurpreet Singh Walia, Inter PartesReview an Option as a Substitute for Hatch-Waxman litigation (Nov. 7, 2014), available athttp://www.insidecounsel.com/2014/11/07/inter-partes-review-an-option-as-a-substitute-for(last visited Mar. 9, 2015).


brings an infringement action, the parties may enter into a settlement, per-haps agreeing to defer generic competition without any judicial findings.Prior administrative review will filter out some of these cases by limiting theHatch-Waxman boost to those patents that could reasonably be asserted, i.e.,patents that present a plausible case for deferring generic entry. Although thepatent holder could still pursue an infringement action even if its patent isnot listed,275 it may decide not to bother if it does not thereby gain an auto-matic thirty-month stay of regulatory approval. On the other hand, if thelisting of a patent means that FDA agrees that it covers an approved drug ormethod of use, the position of the patent holder in litigation might bestronger than it is in the current regime of administrative deference to inno-vators. If generics expect the courts to defer to FDA’s determinations, theymight file fewer paragraph IV certifications, further limiting litigation.

Finally, in cases that proceed to litigation, prior administrative reviewwould give courts the benefit of FDA’s expert reading of NDAs andANDAs, which should improve the quality of judicial decisions. Courts mayalso benefit from learning how FDA understood the claim language, givenits technical expertise in drug development. Although courts will engage in amore elaborate process of claim interpretation in an infringement action,FDA’s assessment prior to litigation of whether a claim could reasonably beasserted against an unauthorized generic could be useful evidence of whatthe claim language means to a person having ordinary skill in the field toconsider alongside other evidence presented by the parties.

D. Addressing FDA’s Concerns

We expect that the courts would acquiesce in more active administrativeoversight along the lines sketched out above, just as they have acquiesced,albeit sometimes reluctantly, in FDA’s interpretation of the Hatch-WaxmanAct to limit its involvement in patent disputes to the “purely ministerial”function of doing what the NDA holders tell them to do.276 For the reasons

275. Some judicial decisions have erroneously stated that a paragraph IV certification isnecessary to allow a patent holder to bring an action against an ANDA filer. Eli Lilly & Co. v.Medtronic, Inc., 496 U.S. 661, 678 (1990) (“§ 271(e)(2) [creates] a highly artificial act ofinfringement that consists of submitting an ANDA or a paper NDA containing [a paragraphIV] certification . . .”); Bristol Myers Squibb v. Royce Laboratories, 69 F.3d 1130, 1131 (Fed.Cir. 1995) (“Inclusion of a paragraph IV certification in an ANDA, however, is deemed an actof infringement.”). That is not, however, what the statute says. Under 35 U.S.C. § 271(e)(2), itis an act of infringement “to submit [an ANDA] for a drug claimed in a patent or the use ofwhich is claimed in a patent . . . if the purpose of such submission is to obtain approval . . . toengage in the commercial manufacture, use, or sale of a drug . . . claimed in a patent or the useof which is claimed in a patent before the expiration of such patent.” See AstraZenecaPharmaceuticals v. Apotex Corp., 669 F.3d 1370 (Fed Cir. 2012) (upholding jurisdiction overinfringement action brought under 35 U.S.C. § 271(e)(2) even though ANDA used a sectionviii statement rather than a paragraph IV certification for the patent at issue).

276. See supra notes 92–100 and accompanying text.


explained above we think a more active role for FDA is necessary to preventfirms from improperly claiming the Hatch-Waxman boost for patents that donot meet the statutory criteria for deferring ANDA approvals. But FDAplainly does not want a more active role in administering the Hatch-Waxmanpatent provisions and is not likely to assume such a role unless Congresscompels it to do so. If Congress wants FDA to oversee the determination ofwhich patents get the Hatch-Waxman boost, it may need to say so. At thesame time, it should consider how best to address the objections that FDAhas raised to taking on a larger role in the process.

FDA’s first justification for patent punting is that it lacks patent exper-tise. The expanded role we contemplate for FDA in overseeing Orange Booklistings and the use of section viii statements would require comparing theclaims of patents to the scope of approval under NDAs and ANDAs. Theinterpretation of patent claims is one part of this analysis; the rest of the jobconsists of determining whether the patent covers a drug product or methodof use that has been approved in an NDA and, in the case of disputes aboutthe adequacy of a section viii statement to address method of use claims,whether the ANDA seeks approval for the patented method of use. We havealready argued that FDA has much greater expertise than the courts in un-derstanding the meaning of NDAs and ANDAs. NDAs and ANDAs aredrafted according to the requirements of the FDCA277 as interpreted byFDA.278 FDA may, however, need to hire patent lawyers or agents to inter-pret patent claims. These FDA employees will not need to replicate the pro-ceedings that a district court would follow in a full adjudication. FDA’s jobis to make an initial determination of whether a patent claims a drug productor method of use and could reasonably be asserted against an unauthorizedgeneric. This task requires staff who are familiar with general principles ofclaim interpretation and the ability to read claim language in light of thespecification, the prosecution history, and the meaning of claim language topersons of ordinary skill in the field.

FDA also claims that it lacks the resources to address patent issues. Itstands to reason that FDA may need to hire additional personnel to carry outa task that FDA is currently not performing. FDA may well need furtherresources to allow it to hire skilled personnel to oversee the listing of patentsin the Orange Book and determine whether method of use patents can becarved out of ANDA approvals. Time is of the essence in determining when

277. 21 U.S.C. §§ 355(b)(1), 355(j)(2)(A).278. A list of FDA resources and Guidance Documents for the preparation of NDAs may

be found at www.fda.gov/drugs/developmentapprovalprocess/howdrugsaredevelopedandap-proved/approvalapplications/newdrugapplicationnda/default.htm (last visited July 29, 2014). Alist of FDA resources and Guidance Documents for the preparation of ANDAs may be foundat http://www.fda.gov/drugs/developmentapprovalprocess/howdrugsaredevelopedandap-proved/approvalapplications/abbreviatednewdrugapplicationandagenerics/default.htm (last vis-ited July 29, 2014).


generic products may be approved, and inadequate staffing will cause de-lays. Congress could address resource needs at the same time that it clarifiesFDA’s oversight role. The cost of additional personnel could be covered byassessing user fees on firms submitting patents for listing in the OrangeBook. User fees, in combination with regulatory oversight, might discouragethe submission of inappropriate patents more effectively than the currentrequirement that such submissions be accompanied by declarations underpenalty of perjury attesting to their accuracy. User fees could also be as-sessed to cover the costs of reviewing section viii statements when the patentholder argues that a paragraph IV certification is necessary.

FDA also worries that if it takes a more active role, it will be sued byfirms that are unhappy with its decisions. Over the years FDA has defendedmany lawsuits brought by firms that have been unhappy with its regulatorymoves, particularly when it sets a new course.279 FDA has certainly beensued over its refusal to oversee the Orange Book.280 Given the commercialsignificance of the Hatch-Waxman boost, some patent holders can be ex-pected to argue that the statute limits FDA to the “purely ministerial” role ithas taken so far, especially if FDA were to change its interpretation withoutprodding from Congress. Although the courts have so far deferred to FDA’sinterpretation of the current statute, they have also expressed criticisms, andwe think it is likely that they would also defer to a revised interpretation ofthe existing statute that gives FDA a larger oversight role. But Congresscould surely protect FDA from such lawsuits in any new legislation to pro-vide for more active FDA oversight.

Congress could also take steps to shield FDA from lawsuits challengingits decisions in individual cases about the proper listing of patents in theOrange Book or appropriate carve-out in an ANDA of particular patents,although whether it should do so presents a closer question than whether itcould do so. FDA could certainly make erroneous determinations, withcostly consequences either way. On the other hand, judicial review couldadd costs and delays that would cancel the benefits of timely and cost-effec-tive administrative oversight. Moreover, the expanded FDA role we advo-cate would not prevent patent holders from enforcing their rights under thePatent Act through infringement actions in the courts. FDA would not ruleon the validity of patents, nor would it undertake comprehensive infringe-ment analysis. It would simply determine which patents should cause delays

279. See, e.g., Edison Pharmaceutical Co. v. FDA, 600 F.2d 831 (D.C. Cir. 1979) (chal-lenging requirement for double-blind testing and exclusion of physician testimonials to estab-lish safety and efficacy); E.R. Squibb & Sons, Inc. v. Bowen, 870 F.2d 678 (D.C. Cir. 1989)(challenging withdrawal of approval of combination product following change in statute forlack of showing that effects of one of the ingredients had medical significance); Food & DrugAdmin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000 (challenging initiative toregulate cigarettes as drug-device combination products).

280. See supra Part II.B.


in ANDA approvals. A patent holder who believes its patent was improperlyexcluded from the Orange Book could still sue for infringement based on thefiling of the ANDA and seek a preliminary injunction against the generic.281

Current law provides authority for the court to order that the effective date ofapproval of the ANDA be deferred until the expiration of the patent.282 Theavailability of a preliminary injunction in an infringement action is an ade-quate judicial safeguard against harm to patent holders from erroneous FDAdeterminations that a patent could not reasonably be asserted against an un-authorized generic, without the need for a separate lawsuit to contest theadministrative decision itself.

Congress might also wish to address the timing of FDA decisions aboutthe proper listing of patents. NDA applicants currently file patent informa-tion along with their NDAs, and amend their filings to include patents filedafter that date but before NDA approval. The statute requires FDA to publishthis information upon approval of the application. The statute further re-quires NDA holders to file information for patents issued after NDA ap-proval within thirty days, and for FDA to publish the information upon itssubmission. The statute makes no provision for a review period to determinewhether a patent qualifies for listing in the Orange Book.283 For patents dis-closed early enough in the initial term of regulatory exclusivity, FDA couldpublish the patent information when it is submitted and later remove it fromthe Orange Book if it determines following review that the patent did notmeet the statutory criteria for listing. But for later-issued patents, there maynot be time for FDA to review the patent and determine whether it qualifiesfor listing before the date when an ANDA could be filed or even approved ifthe patent were not listed. If such patents are initially listed, they may get atleast a portion of the Hatch-Waxman boost before FDA can conduct its re-view and determine that they should be delisted. Under current law, ANDAsfiled in the interim would need to include either a section vii certification ora section viii statement for such patents, and the generic would have to givenotice in case of a paragraph IV certification, likely triggering an infringe-ment action and a thirty-month stay of approval. But FDA could terminatethe stay if it later determines that the patent should not have been listed orthat the ANDA does not seek approval for the patented method of use, leav-ing the patent holder to seek relief from the District Court. An alternativewould be to defer the listing of patents in the Orange Book until after FDAdetermines that they qualify for listing. This approach would withhold theHatch-Waxman boost from later-issued patents during the lag time between

281. See 21 U.S.C. § 355(j)(5)(B)(iii)(III)–(IV) (addressing effective date of ANDA ap-proval when district court has granted a preliminary injunction).

282. 35 U.S.C. § 271(e)(4)(A) (2012).283. Indeed, this time frame arguably provides textual support for FDA’s “purely minis-

terial” understanding of its role in administering these provisions. See supra notes 59–62 andaccompanying text.


disclosure of the patent and FDA’s determination of its relevance to theNDA or ANDA. Some ANDA approvals might become effective during thisperiod, leaving patent holders to pursue their patent infringement remediesto prevent generic entry without the benefit of a stay of regulatory approval.Either way, the statute should specify a finite but reasonable period of timefor FDA to make its determination. The one hundred and eighty day periodcurrently specified in the statute for reviewing an ANDA seems like a rea-sonable period of time for deciding whether a patent is entitled to the Hatch-Waxman boost. Prompt determinations will allow the parties to plan for ge-neric entry and will make FDA’s assessment of the relevance of patents toits approval documents available to the courts in cases that proceed tolitigation.

Our proposal would replace FDA’s current practice of patent puntingwith a rough administrative assessment of the merits of patent issues thatdetermine the timing of regulatory approval. It would not displace other in-stitutional mechanisms within the heart of the patent system for reviewingthe same issues, including review of patent validity in the U.S. Patent andTrademark Office (PTO) and litigation of patent infringement actions in thecourts. But it would require some engagement with patents and patent lawoutside of those institutional mechanisms.

This proposal would not eliminate the problem of anticompetitive settle-ments of patent infringement actions, but we expect it would reduce theamount of litigation that leads to such settlement by reducing incentives tolitigate the weakest cases. We do not propose to limit the right of patentholders to pursue remedies for patent infringement in the courts, but weexpect that fewer patent holders would pursue infringement actions if theydid not thereby gain the benefits of the Hatch-Waxman boost for cases withlittle merit. By withholding the Hatch-Waxman boost for patents that are notrelevant to particular NDAs and ANDAs, FDA would make infringementlitigation less attractive to patent holders in these cases, and the remainingcases would be more likely to have merit. Presumably parties will continueto settle those cases that are filed, but the problem of anticompetitive settle-ments should diminish with a reduction in the benefits of filing weak cases.

CONCLUSION

Under the Hatch-Waxman Act, patent law and FDA regulation worktogether to determine the timing of generic entry in the market for drugs. ButFDA has sought to avoid any responsibility for reading patents, preferring todefer to drug developing firms’ assessments of which patents should deferapproval of competing generic versions of their products. This gap in regula-tory oversight has allowed innovators to defer competition through the list-ing of irrelevant patents. Provisions for litigation of patent disputes havefailed to provide a timely corrective for abuses made possible by the lack of


administrative oversight. Meanwhile, patent litigation has led to anticompe-titive settlements, forestalling adjudication of the patent issues and provok-ing antitrust litigation. Antitrust courts have proven no more willing thanFDA to address the merits of the underlying patent infringement actions,preferring to rely on misleading proxies such as the existence of a “reversepayment” in the settlement agreement.

We propose to increase the role of FDA in making timely determina-tions of which patents meet the statutory criteria for deferring generic entry,while leaving the patent system and its remedies intact. With proper staffingand resources, FDA could use its expertise in drug regulation to make roughassessments of the relationship between particular patents and the scope ofFDA approval in NDAs and ANDAs more quickly and cheaply than thecourts could rule on related infringement actions. Only those patents thatFDA decides could reasonably be asserted against an unauthorized genericwould lead FDA to stay approval of the ANDA pending litigation of theinfringement action, but litigation would still be available even if FDA de-cides the patent does not meet the criteria for listing, and the court couldenter a preliminary injunction with the same effect as a stay of approval. Weexpect that without the stay of regulatory approval, patent holders will de-cide not to pursue some actions that lack merit, limiting opportunities foranticompetitive settlements.

But perhaps we are addressing this problem from the wrong angle.Maybe the problem is not with the Hatch-Waxman Act, but with patent law.We have known for many years that patent issues are challenging and aver-sive for non-experts. Congress has tried to manage this problem by ghetto-izing patent disputes into expert tribunals. Thirty years ago, Congresscreated the specialized Court of Appeals for the Federal Circuit to hear ap-peals in patent cases. More recently, Congress started experimenting withmechanisms to bring more expertise into the resolution of patent cases at thetrial court level and creating more opportunities for administrative review ofpatentability within the PTO. But these strategies break down when patentlaw spills over into other legal regimes.

One lesson we might learn from this case study of patent punting is thatthe complexity and opacity of the patent system makes it problematic to usepatents as a benchmark for determining the scope of legal rights outside thepatent system. Under the Hatch-Waxman Act, the timing of regulatory ap-provals depends on patents, but it is difficult to implement that regime ap-propriately when regulators are loath to look at patents. Application of theantitrust laws similarly turns, in part, on the validity and scope of patents,but it is difficult to work out what that means when antitrust courts do notevaluate patents. The law is a seamless web, and a regime as important asthe patent system has an appropriate bearing on other laws. But if decision-makers are reluctant to analyze patent issues that properly have a bearing ontheir analysis, the impact of the patent system will inevitably be distorted.


Perhaps the trend toward ghettoizing patent disputes within expert tribu-nals has allowed complexity and opacity to flourish. Greater reliance on gen-eralists to apply patent law might create pressure to simplify and clarify,making it easier for everyone to understand patents and the rights they con-fer, and limiting opportunities for strategic abuse of ambiguities. Perhaps thepatent system could be more effective in achieving its goals if it were lesscomplex and opaque. To some extent, the complexity of the patent system isa function of technological complexity. But when even a technologicallyexpert agency like FDA shies away from engaging with patent issues, theproblem goes beyond technological complexity. Perhaps the ghettoizing ofpatent law has made it seem more daunting to the uninitiated than it is orneeds to be. Perhaps in those areas where patent law necessarily interactswith non-patent law, we would do better to direct those who administer theadjacent non-patent legal regimes to roll up their sleeves and start dealingwith patents.